Four
permits for the operation of secure landfills for the disposal of hazardous
waste generated by oil and gas operations have been issued in Northeastern
British Columbia. T holds two permits and operates two landfills pursuant to
them. A third permit is held by an Aboriginal community but the landfill has
not yet been constructed. The fourth permit is held by B, a wholly owned
subsidiary of C. When T acquired C, the Commissioner of Competition (the “Commissioner”)
opposed the transaction on the ground that it was likely to substantially
prevent competition in secure landfill services in Northeastern British
Columbia. The Commissioner asked the Competition Tribunal (the “Tribunal”) to
order, pursuant to s. 92 of the Competition Act, R.S.C. 1985, c. C-34
(the “Act”), that the transaction be dissolved, or in the alternative, that T
divest itself of B or C.

Pursuant
to s. 92 of the Act, the Tribunal found that the merger was likely to prevent
competition substantially in the relevant market. It further found that the
efficiencies gained by the merger were not greater than and would not offset
the anti-competitive effects of the merger, such that T had failed to bring
itself within the efficiencies exception contained in s. 96 of the Act. The
Tribunal ordered T to divest itself of B. The Federal Court of Appeal upheld
the Tribunal’s conclusion that the merger would likely substantially prevent
competition. With respect to the s. 96 efficiencies defence, the court held
that the Tribunal erred in a number of respects. However, in its fresh
assessment of the matter, the court concluded that the merger only provided
marginal gains in efficiency which were not significant enough to approve a
merger under s. 96. As a result, the court dismissed the appeal.

Held (Karakatsanis J. dissenting):The appeal should be allowed, the divestiture order set aside and
the s. 92 application dismissed.

Per
McLachlin C.J. and Rothstein, Cromwell, Moldaver and Wagner JJ.: While a
standard of reasonableness presumptively applies in this case because the
questions at issue are questions of law arising under the Tribunal’s home
statute, that presumption is rebutted. The appeal provision in the Competition
Tribunal Act, R.S.C. 1985, c. 19 (2nd Supp.), evidences a
clear Parliamentary intention that decisions of the Tribunal be reviewed on a
less than deferential standard, supporting the view that questions of law
should be reviewed for correctness and questions of fact and mixed law and fact
for reasonableness.

The
concern under the “prevention” branch of s. 92 of the Act is that a firm with
market power will use a merger to prevent competition that could otherwise
arise in a contestable market. To determine whether a merger gives rise to a
substantial prevention of competition under s. 92(1), the Tribunal must look to
the “but for” market condition to assess the competitive landscape that would
likely exist if there was no merger. First, it is necessary to identify the
firm or firms the merger would prevent from independently entering the market.
Typically, the potential competitor will be one of the merged parties: the
acquired firm or the acquiring firm. The potential entry of the acquired firm
will be the focus of the analysis when, but for the merger, it would likely
have entered the relevant market. The potential entry of the acquiring firm
will be the focus of the analysis when, but for the merger, the acquiring firm
would have entered the relevant market independently or through the acquisition
and expansion of a smaller firm.

Second,
it is necessary to examine the “but for” market condition to see if, absent the
merger, the potential competitor would have likely entered the market and if so
whether the effect of that competitor’s entry on the market would likely be
substantial. If the independent entry has no effect on the market power of the
acquiring firm then the merger cannot be said to prevent competition
substantially. At this stage of the analysis, any factor that could influence
entry upon which evidence has been adduced should be considered, such as the
plans and assets of that merging party, current and expected market conditions,
and other factors listed in s. 93 of the Act. The timeframe for entry must be discernible.
In other words, there must be evidence of when the merging party is
realistically expected to enter the market in absence of the merger. That
evidence must be sufficient to meet the “likely” test on a balance of
probabilities, keeping in mind that the further into the future the Tribunal
looks, the more difficult it will be to meet the test. The inherent time delay
that a new entrant, facing certain barriers and acting diligently to overcome
them, could be expected to experience when trying to enter the market is an
important consideration, but should not support an effort to look farther into
the future than the evidence supports. As for whether a potential competitor’s
entry into the market will have a substantial effect, it is necessary to assess
a variety of dimensions of competition including price and output, as well as
the degree and duration of any effect it would have on the market. Section 93
of the Act provides a non-exhaustive list of factors that may be considered.

In
the present case, the Tribunal’s conclusion that the merger is likely to
substantially prevent competition is correct. It used a forward-looking “but
for” analysis, identified the acquired party as the focus of the analysis, and
assessed whether, but for the merger, the acquired party would likely have
entered the relevant market in a manner sufficient to compete with T. The
Tribunal did not speculate; rather, it made findings of fact based on the
abundant evidence before it. While the Tribunal’s treatment of the asserted 10
percent reduction in prices that would allegedly have been realized in absence
of the merger was flawed, there was sufficient other evidence upon which it
could find a substantial prevention of competition as a result of the merger.

As s.
92 of the Act is engaged, it is necessary to determine whether the s. 96
efficiencies defence applies to prevent the making of an order under s. 92.
The defence requires an analysis of whether the efficiency gains of the merger,
which result from the integration of resources, outweigh the anti-competitive
effects, which result from the decrease in or absence of competition in the
relevant geographic and product market. The Commissioner has the burden of
proving the anti-competitive effects, and the merging parties bear the onus of
proving the remaining elements of the defence. There are different possible
methodologies for the comparative exercise under s. 96, two of which have been
the subject of judicial consideration in Canada: the “total surplus standard”
which involves quantifying the deadweight loss which will result from a merger,
and the “balancing weights standard” under which the Tribunal weighs the
effects of the merger on consumers against the effects of the merger on the
shareholders of the merged entity. Because the Act does not set out which
methodology should be used, the Tribunal has the flexibility to make the
ultimate choice of methodology in view of the particular circumstances of each
merger.

While
s. 96 does give primacy to economic efficiency, it is not without limitation.
Not all economic efficiencies should be taken into account under s. 96. A
distinction should be drawn between efficiencies claimed because a merging
party would be able to bring those efficiencies into being faster than would be
the case but for the merger (“early-mover efficiencies”), and efficiencies that
a merging party could realize sooner than a competitor only because the
competitor would be delayed in implementing those efficiencies because of legal
proceedings associated with a divestiture order (“order implementation
efficiencies”). Efficiencies that are the result of the regulatory process of
the Act are not cognizable under s. 96, because they result from the operation
and application of the legal framework regulating competition law in Canada,
rather than from the merger itself. On the other hand, early-mover
efficiencies are cognizable under s. 96, because they are real economic
efficiencies that are caused by the merger. In this case, however, the classification
of the one-year transportation and market efficiency gains claimed by T as
either early-mover efficiencies or order implementation efficiencies would not
be dispositive because the efficiencies were not ultimately realized by T.

In
its consideration of the efficiencies defence, the Tribunal should consider all
available quantitative and qualitative evidence. It is the Commissioner’s
burden to quantify all quantifiable anti-competitive effects. Effects that can
be quantified should be quantified, even as estimates, provided such estimates
are grounded in evidence that can be challenged and weighed. If effects are
realistically measurable, failure to at least estimate the quantification of
those effects will not result in the effects being assessed on a qualitative
basis. Effects will only be considered qualitatively if they cannot be
quantitatively estimated. This approach minimizes the degree of subjective
judgment necessary in the analysis and enables the Tribunal to make the most
objective assessment possible in the circumstances.

Here,
the Commissioner did not quantify quantifiable anti-competitive effects and
therefore failed to meet her burden under s. 96. Specifically, there is no
price elasticity information which means that the possible range of deadweight
loss resulting from the merger is unknown. To permit the Tribunal to consider
the price decrease evidence without the rest of the information necessary to
quantify deadweight loss admits far too much subjectivity into the analysis,
with no guarantee that the Tribunal will have enough information to ensure that
a subjective assessment would align with what would actually be observed if the
effect were properly quantified. As a result, those quantifiable anti-competitive
effects should be assigned zero weight. In setting the weight of these effects
at undetermined, the Federal Court of Appeal allowed for subjective judgment to
overtake the analysis. Its “undetermined” approach also raises concerns of
fairness to the merging parties, in that it places them in the impossible
position of having to demonstrate that the efficiency gains exceed and offset
an amount that is undetermined. Under this approach, requiring the merging
parties to prove the remaining elements of the defence on a balance of
probabilities becomes an unfair exercise as they do not know the case they have
to meet.

The
balancing test under s. 96 mandates a flexible but objectively reasonable
approach by which the Tribunal must determine both quantitative and qualitative
aspects of the merger, and then weigh and balance those aspects. The test may
be framed as a two-step inquiry. First, the quantitative efficiencies of the
merger should be compared against the quantitative anti-competitive effects.
Where the quantitative anti-competitive effects outweigh the quantitative
efficiencies, this step will in most cases be dispositive, and the defence will
not apply. Under the second step, the qualitative efficiencies should be
balanced against the qualitative anti-competitive effects, and a final
determination must be made as to whether the total efficiencies offset the
total anti-competitive effects of the merger at issue. However, despite the
flexibility the Tribunal has in applying this balancing approach, more than
marginal efficiency gains should not be required for the defence to apply. The
words of the Act do not provide a basis for requiring this kind of threshold.
Nor does the statutory context of s. 96(1) indicate that it should be read to
include a threshold significance requirement. As a result, the Federal Court
of Appeal erred in holding that an anti-competitive merger cannot be approved
under s. 96 if only marginal or insignificant gains in efficiency result from
that merger.

In
this case, the Commissioner did not meet her burden to prove the anti-competitive
effects, and as such, the weight given to the quantifiable effects is zero.
There are no proven qualitative effects. T, however, established overhead
efficiency gains resulting from B’s obtaining access to T’s administrative and
operating functions. These proven gains meet the “greater than and offset”
requirement, and the efficiencies defence has therefore been made out.

Per
Abella J.: The applicable standard of review in this case is reasonableness,
not correctness. Following the case of Pezim v. British Columbia
(Superintendent of Brokers), [1994] 2 S.C.R. 557, which introduced a new
edifice for the review of specialized tribunals, the jurisprudence of this
Court has developed into a presumption that, regardless of the presence or
absence of either a right of appeal or a privative clause, when a tribunal is
interpreting its home statute, reasonableness applies. While the statutory
language granting the right of appeal in this case may be different from the
language granting the right of appeal in other cases where this Court has
applied a reasonableness standard, it is not sufficiently different to
undermine the established principle of deference to tribunal expertise in the
interpretation of the tribunal’s own statute. Using such language to trump the
deference owed to tribunal expertise, elevates the factor of statutory language
to a pre-eminent and determinative status we have long denied it. To apply
correctness in this case represents a reversion to the pre-Pezim era,
undermines the statutorily-recognized expertise of the Tribunal, and
constitutes an inexplicable variation from the Court’s jurisprudence that is
certain to engender the very “standard of review” confusion that inspired this
Court to try to weave the strands together in the first place. Applying the
reasonableness standard, the Tribunal’s interpretation of s. 96 of the Act was
unreasonable.

Per
Karakatsanis J. (dissenting): T was not entitled to the benefit of the s. 96
efficiencies defence. Efficiencies and effects should be quantified wherever
reasonably possible in the s. 96 analysis, and the assessment of qualitative
effects should be objectively reasonable, supported by evidence and clear
reasoning. However, the need for “reasonable objectivity” does not justify a
hierarchical approach to quantitative and qualitative aspects under the
efficiencies defence; nor should qualitative effects be of lesser importance
than quantitative effects. The statutory language of the Act does not
distinguish between quantitative and qualitative efficiencies, and many of the
wide-ranging purposes of the Act set out in s. 1.1 may not be quantifiable.
Indeed, many important anti-competitive effects of a merger may be qualitative
in nature, and in some cases, those qualitative effects may be determinative in
the s. 96 analysis. The legislation mandates a purposive analysis, and the
relative significance of qualitative and quantitative gains or effects can only
be determined in the circumstances of each case. It is neither helpful nor
necessary to predetermine their relative role and importance in the s. 96
defence.

The
Federal Court of Appeal’s view that the s. 96 analysis is at heart about
balancing overall efficiency gains against overall anti-competitive effects is
an approach that provides an appropriate level of flexibility, given that
efficiencies and anti-competitive effects will not always be easy to measure.
The s. 96 framework enables the expert Tribunal to holistically assess the
entirety of the evidence before it, rather than artificially bifurcating the
analysis of qualitative and quantitative effects that may, in some cases, more
helpfully be analyzed together.

Further,
while the Commissioner bears the evidentiary burden to lead evidence of the
anti-competitive effects of a merger, and bears the risk that the failure to
fully quantify such effects where possible may render the evidence insufficient
to counter the evidence of efficiency gains, the failure to quantify quantifiable
anti-competitive effects does not invalidate the evidence that established
there was a known anti-competitive effect of undetermined extent. Relevant
evidence is generally admissible, and the failure to lead the best evidence
available goes to weight, not admissibility. Neither the statutory language of
the Act nor its purpose or context require that an anti-competitive effect of
undetermined weight become irrelevant or inadmissible.

The
Federal Court of Appeal was entitled to conclude that the Tribunal’s finding
that prices would have been 10 percent lower in the relevant area in the
absence of a merger amounted to evidence of a known anti-competitive effect of
undetermined weight. The court was also in a position to accept that T’s pre-existing
monopoly was likely to magnify the anti-competitive effects of the merger.
Ultimately, the court was entitled to find that the proven efficiency gains
were marginal to the point of being negligible and did not likely exceed the
known (but undetermined) anti-competitive effects.

[1]The appellant in this case, Tervita Corp.,
operates two hazardous waste secure landfills in British Columbia. In February
2010, Tervita Corp. acquired a company which held a permit for another secure
landfill site. This transaction attracted the attention of the Commissioner of
Competition, who initiated the merger review process under the Competition
Act,R.S.C. 1985, c. C-34 (the “Act”).

[2]The purpose of the Act is in part “to maintain
and encourage competition in Canada in order to promote the efficiency and
adaptability of the Canadian economy” (s. 1.1). It is within this context that
merger reviews are conducted. This appeal provides this Court the opportunity
to address two issues in merger review: the “prevention” branch of s. 92 and
the s. 96 efficiencies defence.

[3]Four permits for the operation of secure
landfills for the disposal of hazardous waste generated by oil and gas
operations have been issued in Northeastern British Columbia. The appellant
Tervita Corp. holds two of the permits and operates two hazardous waste
landfills pursuant to them: the Silverberry (capacity for 6,000,000 tonnes of
waste) and Northern Rockies (3,344,000 tonnes) landfills. A third permit was
issued for the Peejay site, a site developed by an Aboriginal community, but
the landfill has not yet been constructed.

[4]The fourth permit, Babkirk site, is held by the
appellant Babkirk Land Services Inc. (“Babkirk”), a wholly owned subsidiary of
the appellant Complete Environmental Inc. (“Complete”). The previous Babkirk
owners operated a hazardous waste landfill on the site from 1998 to 2004. In
2009, they sold Babkirk to Complete, which is owned and controlled by five
investors (the “Vendors”).

[5]The Vendors intended to begin operating the
Babkirk site mainly as a bioremediation facility which would treat contaminated
soil using micro-organisms, and to complement the bioremediation site with a
secure landfill facility to store hazardous waste not amenable to
bioremediation. In February 2010, the Vendors received a permit for this
secure landfill with a capacity of 750,000 tonnes.

[6]Soon afterwards, a company called Integrated
Resources Technologies Ltd. (“IRTL”) offered to purchase Complete. The Vendors
then explored the possibility of selling to other third parties. Secure Energy
Services (“SES”) showed some interest, but at a lower price. The Vendors
decided to accept IRTL’s offer, but it was withdrawn in June 2010 due to lack
of financing. In one last attempt to sell, the Vendors pursued various
discussions with SES and Tervita Corp., then known as CCS Corp. (hereinafter
“Tervita Corp.”). In July 2010, the Vendors reached an understanding with
Tervita Corp. and a letter of intent was signed.

[7]The sale of the Vendors’ shares in Complete
(including Babkirk and the Babkirk site) closed on January 7, 2011. However,
prior to closing, the Commissioner of Competition informed the parties that she
opposed the transaction on the ground that it was likely to substantially
prevent competition in secure landfill services in Northeastern British
Columbia. After closing, the Commissioner asked the Competition Tribunal to
order, pursuant to s. 92 of the Competition Act, that the transaction be
dissolved, or in the alternative, that Tervita Corp. divest itself of Complete
or Babkirk.

[8]The three appellants in this appeal, Tervita
Corp., Complete and Babkirk, are hereinafter referred to collectively as
“Tervita”.

[10]Pursuant to s. 92, the Tribunalfound that the merger was likely to prevent
competition substantially in the relevant market. The Tribunal further found
that Tervita had not brought itself within the efficiencies exception contained
in s. 96 that would have permitted the merger notwithstanding s. 92. It found
that the efficiencies gained by the merger were not greater than the effects of
the likely prevention of competition resulting from the merger, and would not
offset those effects. It ordered Tervita to divest itself of Babkirk.

[11]The Tribunal assessed whether “effective
competition in the relevant market likely [would] have emerged ‘but for’ the
[m]erger” (para. 129). The parties “essentially agreed” that the commencement
of the timeframe for considering the “but for” market condition, i.e. a market
condition where the merger did not occur, was the end of July 2010 (para. 131).
This was the point in time a letter of intent between Tervita and the Vendors
was signed. The Tribunal agreed that this timeframe commenced at the end of
July 2010.

[12]As of the end of July 2010, the Tribunal saw
only two realistic scenarios for the Babkirk site:

1. The Vendors would have sold to a waste company called [SES],
which would have operated a Secure Landfill; or

2. The Vendors would have operated a bioremediation facility
together with a half cell of Secure Landfill. [para. 132]

[13]The Tribunal found that, on a balance of
probabilities, SES would not have made an acceptable offer for the Complete
site at any time during the summer of 2010. Thus, according to the Tribunal,
the Vendors would have moved forward with the second option: operate the Babkirk
site as a bioremediation facility.

[14]Bioremediation is a “method of treating soil by
using micro-organisms to reduce contamination” (para. 42). The Tribunal
concluded that the Vendors would have had the bioremediation facility fully
operational by October 2011, but that it would have been unprofitable. The
Tribunal concluded that it was “unreasonable to suppose that [the Vendors]
would have been prepared to operate unprofitably beyond the fall of 2012”
(para. 206). Accordingly, the Tribunal found that the Vendors would have either
begun operating the Babkirk site as a secure landfill themselves or would have
sold the site to a purchaser who would have operated the site as a secure
landfill. Either way, the Babkirk site full-service secure landfill would have
been a “direct and substantial” competitor with Tervita no later than the
spring of 2013 (para. 215).

[15]The Tribunal found that a likely effect of the
merger would have been to allow Tervita to maintain its ability to exercise
materially greater market power than it would in the absence of the merger. It
found that in the absence of the merger, disposal fees, called “tipping fees”
in the industry, would have been 10 percent lower in the “Contestable Area”
(the relevant geographic market) (para. 229(iii)).

[16]The Tribunal concluded that the merger was
likely to prevent competition substantially.

[17]The s. 96 efficiencies defence is an exception
to the application of s. 92. The defence prohibits the Tribunal from making an
order precluding a merger when it finds that the merger is likely to bring
about gains in efficiency that would be greater than and would offset the
anti-competitive effects of the merger.

[18]The Tribunal found that the Commissioner had
failed to meet her burden to demonstrate the extent of the quantifiable
anti-competitive effects. The Commissioner’s expert had only estimated that a
price decrease of 10 percent would be precluded by the merger but provided no
estimate of the volume having regard to the elasticity of demand. The Tribunal
found that this meant that Tervita could not take a position about whether the
number it calculated as its total efficiencies was greater than the adverse
effects of the merger (para. 246). However, the Tribunal concluded that, “in
the unusual circumstances of this case”, Tervita was not prejudiced by the
Commissioner’s failure to quantify the anti-competitive effects of the merger.
Tervita was still able to effectively attack the Commissioner’s expert’s
findings and assert the s. 96 defence (para. 246). The Tribunal accepted, on a
balance of probabilities, the Commissioner’s expert’s estimate of a minimum
annual deadweight loss (paras. 301-3).

[19]The Tribunal also accepted what it found to be
qualitative anti-competitive effects — namely environmental effects related to
price reduction on-site clean-up and “value propositions”, or offers Tervita
would have made in a competitive environment to certain customers resulting in
lower total cost for overall waste services used by such customers (paras. 306-7).

[20]The Tribunal rejected most of Tervita’s claimed
efficiencies gains because they would likely be achieved even if the
divestiture order were made (para. 265). The Tribunal also rejected the claimed
“order implementation efficiencies” (“OIEs”) — those transportation and market
expansion efficiencies resulting from delays associated with the implementation
of a divestiture order. The Tribunal held that OIEs are not cognizable under s.
96, because to give merging parties the benefit of these efficiencies would be
contrary to the purposes of the Act (para. 270). The Tribunal did accept
“overhead” efficiencies claimed by Tervita (para. 275).

[21]The Tribunal weighed the proven quantifiable
efficiency gains against the quantifiable anti-competitive effects it accepted
and found that the combined quantitative and qualitative efficiency gains were
not likely to be “greater than” the combined quantitative and qualitative
anti-competitive effects (paras. 313-14). The Tribunal further supported this
conclusion on the basis that, in the absence of a s. 92 order, the merger would
maintain a monopolistic structure in the relevant market, thus precluding
“benefits of competition that will arise in ways that will defy prediction”
(para. 317).

[22]In his concurring reasons, Chief Justice
Crampton[1]
held that for non-quantified effects, where there is not sufficient evidence to
provide even a rough quantification of an effect that is ordinarily
quantifiable, the Tribunal is still able to accord this factor some qualitative
weight (para. 408).

[23]Tervita appealed to the Federal Court of Appeal,
challenging the divestiture order made by the Tribunal.

[24]The Federal Court of Appeal first determined
that the Tribunal’s findings on questions of law should be reviewed on a
standard of correctness, while its findings on questions of fact or of mixed
law and fact should be reviewed on a standard of reasonableness (paras. 52-68).

[25]The Federal Court of Appeal confirmed the
Tribunal’s approach that the analysis required under s. 92 of the Act is
“necessarily forward-looking” (para. 87) and therefore the Tribunal was correct
in “look[ing] into the future to ascertain whether the [Babkirk site entering]
the market would have occurred within a reasonable period of time” (para. 88).
While recognizing that what constitutes a reasonable period of time will
“necessarily vary from case to case and will depend on the business under
consideration” (para. 89), the court set out two guidelines for determining
what constitutes a “reasonable period of time”:

(1) “the time frame must be discernible”
(para. 90), and

(2) “the time frame for market entry
should normally fall within the temporal dimension of the barriers to entry
into the market at issue” (para. 91).

[26]Applying those guidelines, the Federal Court of
Appeal held that the Tribunal “discerned a clear time frame under which the
Babkirk site would enter the market for secure landfills” (para. 92) and that
this discernible timeframe “was also well within the temporal framework of the
barriers to market entry” (para. 94).

[28]The Federal Court of Appeal found that the
Tribunal had erred in allowing the Commissioner to discharge her burden of
proving the quantifiable anti-competitive effects through a reply expert report
setting out a “rough estimate” of the deadweight loss arising from the merger
(para. 128). Tervita had suffered prejudice because the Tribunal had accepted
the methodology of the Commissioner’s expert which was “clearly deficient”
(para. 124) as the methodology used was not capable of calculating the
deadweight loss (paras. 123-25). Although Tervita has the ultimate burden of
establishing that the efficiency gains are greater than and offset the
anti-competitive effects, this “does not relieve the Commissioner of her burden
to prove the anti-competitive effects and to quantify those effects where
possible” (para. 127).

[29]The Federal Court of Appeal agreed with the
Tribunal that to recognize the OIEs would be contrary to the overall scheme of
the Act (para. 135). Further, because Tervita had still not started to build
or operate at the Babkirk site, those gains had not been and never would be
realized (para. 138).

[30]Respecting the final balancing under s. 96, the
Federal Court of Appeal found that the Tribunal had generally set out the right
test (para. 146), except that its methodology was overly subjective.
Efficiencies and anti-competitive effects should be quantified wherever
reasonably possible, and the weight given to unquantifiable qualitative effects
must be reasonable (para. 148). The court held that the Tribunal erred in a
number of respects, including considering qualitative environmental effects
that were not cognizable under s. 96 (paras. 155-56), double-counting the
reduced site clean-up as both a qualitative effect and as part of the deficient
deadweight loss analysis (para. 157) and considering Tervita Corp.’s monopoly
as a distinct anti-competitive effect (paras. 159-61).

[31]In the Federal Court of Appeal’s fresh
assessment of the matter, it concluded that the quantitative anti-competitive
effects of the merger which were not quantified by the Commissioner should be
afforded an “undetermined” weight (paras. 167-68), as opposed to a weight of
zero. In this case, the merger only provided marginal gains in efficiency while
at the same time strengthening the market monopoly in the area (para. 169). The
court held that an anti-competitive merger cannot be approved under s. 96 if
only marginal or insignificant gains in efficiency result from it (paras.
170-72). In this case, the conclusion was strengthened because “a pre-existing
monopoly, such as is the case here, will usually magnify the anti-competitive
effects of a merger” (para. 173).

[34]The parties agree that the Federal Court of
Appeal properly applied a correctness standard of review to the Tribunal’s
determinations of questions of law. I agree that correctness is the applicable
standard in this case.

[36]A decision or order of the Tribunal on a question
of law is appealable as of right as if “it were a judgment of the Federal
Court” with the proviso that leave is required for appeals on questions of fact
(Competition Tribunal Act, R.S.C. 1985, c. 19 (2nd Supp.), s. 13(1)).
The Federal Court of Appeal has consistently held that questions of law arising
from decisions of the Tribunal should be reviewed on a correctness standard
(see Canada (Commissioner of Competition) v. Superior Propane Inc., 2001
FCA 104, [2001] 3 F.C. 185 (“Superior Propane II”), at paras. 59-91; see
also Air Canada v. Canada (Commissioner of Competition), 2002 FCA 121,
[2002] 4 F.C. 598, at para. 43; Canada (Commissioner of Competition) v.
Canada Pipe Co., 2006 FCA 233, [2007] 2 F.C.R. 3, at para. 34; Canada
(Commissioner of Competition) v. Labatt Brewing Co., 2008 FCA 22, 64 C.P.R.
(4th) 181, at para. 5).

[37]In finding that the presumption of
reasonableness is not rebutted, Justice Abella acknowledges that the statutory
language in the appeal provisions in Pezim v. British Columbia
(Superintendent of Brokers), [1994] 2 S.C.R. 557; McLean v. British
Columbia (Securities Commission), 2013 SCC 67, [2013] 3 S.C.R. 895; and Smith
differs from the language at issue here, but is of the opinion that “it is not
sufficiently different to undermine the established principle of deference to
tribunal expertise in the interpretation of the tribunal’s own statute” (para.
179).

[38]With respect, the difference in statutory
language between the Competition Tribunal Act and the legislation relied
upon by Justice Abella is significant. The appeal provision at issue in Pezim
and McLean provided that individuals affected by decisions of the B.C.
Securities Commission “may appeal to the Court of Appeal with leave of a
justice of that court” (Securities Act, S.B.C. 1985, c. 83, s. 149(1), which later became Securities
Act,R.S.B.C. 1996, c. 418, s. 167(1)). The appeal provision in Smith
provided that, under the National Energy Board Act, R.S.C. 1985, c. N-7,
“[a] decision, order or direction of an Arbitration
Committee may, on a question of law or a question of jurisdiction, be appealed
to the Federal Court” (s. 101). By contrast, the Competition Tribunal Act
provides that “an appeal lies to the Federal Court of Appeal from any decision
or order . . . of the Tribunal as if it were a judgment of the
Federal Court” (s. 13(1)).

[39]The statutes at issue in Pezim, McLean,
and Smith did not contain statutory language directing that appeals of
tribunal decisions were to be considered as though originating from a court and
not an administrative source. The appeal provision in the Competition
Tribunal Act evidences a clear Parliamentary intention that decisions of
the Tribunal be reviewed on a less than deferential standard, supporting the
view that questions of law should be reviewed for correctness and questions of
fact and mixed law and fact for reasonableness. The presumption that questions
of law arising under the home statute should be reviewed for reasonableness is
rebutted here.

[40]I also agree with the Federal Court of Appeal
that the standard of review for mixed questions of fact and law and questions
of fact is reasonableness. Reasonableness is normally the “governing standard”
for questions of fact or mixed fact and law (Smith, at para. 26). In
this case, there is nothing to indicate that this presumption should be
rebutted.

[42]Merger review is conducted under s. 92 of the
Act. A merger is “an acquisition of control or a significant interest in all or
part of the business of another” (B. A. Facey and D. H. Assaf, Competition
and Antitrust Law: Canada and the United States (4th ed. 2014), at p. 205).
Section 91 of the Act defines merger as follows:

91. [Definition of “merger”] In sections 92 to 100, “merger” means the
acquisition or establishment, direct or indirect, by one or more persons,
whether by purchase or lease of shares or assets, by amalgamation or by
combination or otherwise, of control over or significant interest in the whole
or a part of a business of a competitor, supplier, customer or other person.

[43]A merger review is designed to identify those
mergers that will have anti-competitive effects (Facey and Assaf, at p. 209).
Section 92 identifies these anti-competitive effects as either substantially
lessening competition or substantially preventing competition. Section 92(1)
provides for remedial orders to be made when a merger is found to either lessen
or prevent competition substantially.

[44]Generally, a merger will only be found to meet
the “lessen or prevent substantially” standard where it is “likely to create,
maintain or enhance the ability of the merged entity to exercise market power,
unilaterally or in coordination with other firms” (O. Wakil, The 2014
Annotated Competition Act (2013), at p. 246). Market power is the ability
to “profitably influence price, quality, variety, service, advertising,
innovation or other dimensions of competition” (Canada (Commissioner of
Competition) v. Canadian Waste Services Holdings Inc., 2001 Comp. Trib. 3,
11 C.P.R. (4th) 425, at para. 7, aff’d 2003 FCA 131, 24 C.P.R. (4th) 178, leave
to appeal refused, [2004] 1 S.C.R. vii). Or, in other words, market power is
“the ability to maintain prices above the competitive level for a considerable
period of time without such action being unprofitable” (Canada (Director of
Investigation and Research) v. Hillsdown Holdings (Canada) Ltd. (1992), 41 C.P.R.
(3d) 289 (Comp. Trib.), at p. 314); where “price” is “generally used as
shorthand for all aspects of a firm’s actions that have an impact on buyers”
(J. B. Musgrove, J. MacNeil and M. Osborne, eds., Fundamentals of Canadian
Competition Law (2nd ed. 2010), at p. 29). If a merger does not have or
likely have market power effects, s. 92 will not generally be engaged (B. A.
Facey and C. Brown, Competition and Antitrust Laws in Canada: Mergers, Joint
Ventures and Competitor Collaborations (2013), at p. 141).

[45]The merger’s likely effect on market power is
what determines whether its effect on competition is likely to be
“substantial”. Two key components in assessing substantiality under the
“lessening” branch are the degree and duration of the exercise of market power
(Hillsdown,at pp. 328-29). There is no reason why degree and
duration should not also be considered under the “prevention” branch.

[46]What constitutes “substantial” will vary from
case to case. The Tribunal has not found it useful to apply rigid numerical
criteria:

What will constitute a likely
“substantial” lessening will depend on the circumstances of each case. . . .Various
tests have been proposed: a likely 5% price rise sustainable for one year; a 5%
price rise sustainable over two years; a small but significant and non-transitory
price rise. The Tribunal does not find it useful to apply rigid numerical
criteria although these may be useful for enforcement purposes.

(Hillsdown,
atpp. 328-29)

[47]If the Tribunal concludes that the merger substantially
lessens or prevents or is likely to substantially lessen or prevent
competition, the Tribunal is empowered to make a remedial order pursuant to s.
92(1)(e) and (f). The Tribunal “may prohibit the parties from
proceeding with all or part of the merger, or it may order the dissolution of a
completed merger or divestiture of assets or shares” (Musgrove, MacNeil and
Osborne, at p. 185).

[48]The ability to make a remedial order is subject
to exceptions (see ss. 94 to 96 of the Act). For the purposes of this appeal,
only s. 96, the so-called efficiencies defence, is relevant. After a finding
that a merger engages s. 92(1), s. 96 may be invoked by the parties to the
merger to preclude a s. 92 remedial order. Section 96 will preclude such an
order if it is found that the merger is likely to bring about efficiencies that
are greater than and will offset the anti-competitive effects resulting from
the merger.

[49]The Tribunal, relying on Canada Pipe,
used the “but for” test to assess the merger in this case.

[50]Canada Pipe was a
case involving abuse of dominance under s. 79(1)(c) of the Act. The
words of s. 79(1)(c) — “is having or is likely to have the effect of
preventing or lessening competition substantially in a market” — are very close
to the words of s. 92(1) — “likely to prevent or lessen” — and convey the same
ideas. In Canada Pipe,the Federal Court of Appeal employed a
“but for” test to conduct the inquiry:

. . . the Tribunal
must compare the level of competitiveness in the presence of the impugned
practice with that which would exist in the absence of the practice, and then
determine whether the preventing or lessening of competition, if any, is “substantial”. . . .

The
comparative interpretation described above is in my view equivalent to the “but
for” test proposed by the appellant. [paras. 37-38]

[51]A similar comparative analysis is conducted
under s. 92(1). A merger review, by its nature, requires examining a
counterfactual scenario: “. . . whether the merger will give the
merged entity the ability to prevent or lessen competition substantially
compared to the pre-merger benchmark or ‘but for’ world” (Facey and Brown, at
p. 205). The “but for” test is the appropriate analytical framework under s.
92.

[52]The words of the Act and the nature of the “but
for” merger review analysis that must be conducted under s. 92 of the Act
require that this analysis be forward-looking.

[53]The Tribunal must determine whether “a merger or
proposed merger prevents or lessens, or is likely to prevent or lessen,
competition substantially”. While the tense of the words “prevents or lessens”
indicates existing circumstances, the ordinary meaning of “is likely to prevent
or lessen” points to events in the future. To the same
effect, the French text of s. 92(1) states “qu’un fusionnement réalisé ou
proposé empêche ou diminue sensiblement la concurrence, ou aura vraisemblablement
cet effet”. Both the English and French text
allow for a forward-looking analysis. This proposition is not controversial.
Both parties to this appeal agree that a forward-looking analysis is
appropriate.

[54]In his concurring reasons at the Tribunal,
Crampton C.J. found that the assessment of a merger review under either the “prevention”
or “lessening” branch is “essentially the same” (para. 367). Both focus on
“whether the merged entity is likely to be able to exercise materially greater
market power than in the absence of the merger” (ibid.). Under both
branches, the lessening or prevention in question must be “substantial” (Canada
(Commissioner of Competition) v. Superior Propane Inc., 2000 Comp. Trib. 15,
7 C.P.R. (4th) 385 (“Superior Propane I”), at paras. 246 and 313). And
the analysis under both the “lessening” and “prevention” branches is
forward-looking.

[55]However, there are some differences between the
two branches. In determining whether competition is substantially lessened, the
focus is on whether the merged entity would increase its market power. Under
the “prevention” branch, the focus is on whether the merged entity would retain
its existing market power. As explained by Chief Justice Crampton in his
concurring reasons:

In
determining whether competition is likely to be lessened, the more
particular focus of the assessment is upon whether the merger is likely to
facilitate the exercise of new or increased market power by the merged entity,
acting alone or interdependently with one or more rivals. In determining
whether competition is likely to be prevented, that more particular
focus is upon whether the merger is likely to preserve the existing market
power of one or both of the merging parties, by preventing the erosion of such
market power that otherwise likely would have taken place if the merger did not
occur. [Emphasis in original.]

[56]While this Court has had occasion to consider
the “lessening” branch of s. 92(1) in Canada (Director of Investigation and
Research) v. Southam Inc., [1997] 1 S.C.R. 748,this is the first
case in which we have had the opportunity to focus on the “prevention” branch
of s. 92(1).

[57]Tervita seeks clarity as to the appropriate
legal test under the “prevention” branch. In Tervita’s view, the “Tribunal
erred in its application of the legal test for a substantial prevention of
competition” (A.F., at para. 59). Tervita argues that “the Act requires that
the Tribunal focus its analysis on the merger under review” (ibid.).
Tervita acknowledges that s. 92 does involve a forward-looking approach, but
submits that what should be projected into the future is the merging parties as
they are, with their assets, plans and businesses at the time of the merger.
Tervita argues that the Act does not permit the Tribunal to speculate, as it
says it did in this case, and that its “fundamental error” is that it focused
“not on the merger between Tervita and [the Vendors], but rather on how
competition might have developed looking years into the future” (A.F., at para.
71).

[58]My understanding of Tervita’s argument is that
the wording of s. 92 essentially limits the inquiry to whether the Babkirk site
was a viable competitive entrant into the secure landfill market at the time it
was acquired by Tervita. That is, in order to establish that the merger is
likely to substantially prevent competition, a party to the merger must be a
potential competitor based on the assets, plans and businesses of the party at
the time of the merger.

[59]For the reasons that follow, I am unable to
agree with Tervita. Rather, I agree with the Commissioner that the wording of
s. 92 generally supports the analysis and conclusions of the Tribunal and the
Federal Court of Appeal with respect to s. 92.

[60]The concern under the “prevention” branch of s.
92 is that a firm with market power will use a merger to prevent competition
that could otherwise arise in a contestable market. The analysis under this
branch requires looking to the “but for” market condition to assess the
competitive landscape that would likely exist if there was no merger. It is
necessary to identify the potential competitor, assess whether but for the
merger that potential competitor is likely to enter the market and determine
whether its effect on the market would likely be substantial.

[61]The first step is to identify the firm or firms
the merger would prevent from independently entering the market, i.e.
identifying the potential competitor. In the competition law jurisprudence
“entry” is considered “either the establishment of a new firm in the market
whether entirely new to the industry or new to the geographic area . . .,
or local firms which previously did not offer the product in question
commencing to do so” (Hillsdown,at p. 325).

[62]Typically, the potential competitor will be one
of the merged parties: the acquired firm or the acquiring firm. The potential
entry of the acquired firm will be the focus of the analysis when, but for the
merger, the acquired firm would likely have entered the relevant market. The
potential entry of the acquiring firm will be the focus of the analysis when, but
for the merger, the acquiring firm would have entered the relevant market
independently or through the acquisition and expansion of a smaller firm, a
so-called “toehold” entry.

[63]I would also not rule out the possibility that,
as suggested by Chief Justice Crampton in his concurring reasons, a likely
substantial prevention of competition could stem from the merger preventing
“another type of future competition” (para. 386). I interpret this to mean that
it is possible that a third party entrant, one not involved in the merger, may
be prevented from entering the market as a result of the merger.

[64]The second step in determining whether a merger
engages the “prevention” branch is to examine the “but for” market condition to
see if, absent the merger, the potential competitor (usually one of the merging
parties) would have likely entered the market and if so whether that entry
would have decreased the market power of the acquiring firm. If the independent
entry has no effect on the market power of the acquiring firm then the merger
cannot be said to prevent competition substantially.

[65]Tervita argues that the intention of s. 92 is
“to establish a merger test that provides certainty to Canadian businesses”
(A.F., at para. 66). However, the term “likely” in s. 92 does not require
certainty. “Likely” reflects the reality that merger review is an inherently
predictive exercise, but it does not give the Tribunal licence to speculate;
its findings must be based on evidence.

[66]There is only one civil standard of proof: proof
on a balance of probabilities (F.H. v. McDougall, 2008 SCC 53, [2008] 3
S.C.R. 41, at paras. 40 and 49). This means that in order for s. 92 of the Act
to be engaged, the Tribunal must be of the view that it is more likely than not
that the merger will result in a substantial prevention of competition. Mere
possibilities are insufficient to meet this standard. And, as will be
discussed, as events are projected further into the future, the risk of
unreliability increases such that at some point the evidence will only be
considered speculative.

[67]In determining whether one of the merging
parties would, in the absence of the merger, be likely to enter the market
independently, any factor that in the opinion of the Tribunal could influence
entry upon which evidence has been adduced should be considered. This will
include the plans and assets of that merging party, current and expected market
conditions, and other factors listed in s. 93 of the Act.

[68]Where the evidence does not support the
conclusion that one of the merging parties or a third party would enter the
market independently, there cannot be a finding of likely prevention of
competition by reason of the merger. To the same effect, where the evidence is
only that there is a possibility of the merging party entering the market at
some time in the future, a finding of likely prevention cannot be made. In this
respect, I agree with Justice Mainville that the timeframe for entry must be
discernible (F.C.A. decision, at para. 90). While timing does not need to be a
“precisely calibrated determination” (ibid.), there must be evidence of
when the merging party is realistically expected to enter the market in absence
of the merger. Otherwise the timing of entry is simply speculative and the test
of likelihood of prevention of competition is not met. Even where there is
evidence of a timeframe for independent entry, the farther into the future
predictions are made, the less reliable they will be. The Tribunal must be
cautious in declaring a lengthy timeframe to be discernible, especially when
entry depends on a number of contingencies.

[69]My understanding of Tervita’s argument is that
it seeks to limit the Tribunal’s ability to look into the future to what can be
discerned from the merging parties’ assets, plans and business at the time of
the merger. However, in my view, there is no legal basis to restrict the
evidence the Tribunal can look at in this way.

[70]Justice Mainville held that how far into the
future the Tribunal can look when assessing whether, but for the merger, the
merging party would have entered the market should normally be determined by
the lead time required to enter a market due to barriers to entry, which he
referred to as the “temporal dimension” of the barriers to entry: “. . .
the time frame for market entry should normally fall within the temporal
dimension of the barriers to entry into the market at issue” (F.C.A. decision,
at para. 91).

[71]Barriers to entry relate to how easily a firm
can commence business in the relevant market and establish itself as a viable
competitor (Canada (Director of Investigation and Research) v. Laidlaw Waste
Systems Ltd. (1992), 40 C.P.R. (3d) 289, at p. 330). The lead time required
to enter a market due to barriers to entry (“lead time”) refers to the inherent
time delay that a new entrant, facing certain barriers and acting diligently to
overcome them, could be expected to experience when trying to enter the market.

[72]In setting lead time as the appropriate length
of time to consider, Justice Mainville relied on the American case BOC
International Ltd. v. Federal Trade Commission, 557 F.2d 24 (2d Cir. 1977),
whichconsidered whether a merger violated s. 7 of the Clayton Act,
15 U.S.C. § 18,under the “actual potential competition” doctrine, the
U.S. equivalent of the “prevention” branch of s. 92 of the Act. BOC
International turned on whether the evidence was sufficient to meet the
requirements under the “actual potential competition” doctrine. The U.S.
Federal Trade Commission found that there was a “reasonable probability” that
the acquiring firm would have “eventually entered” the U.S. market but for its
acquisition of the acquired company (BOC International, at p. 28).

[73]The Second Circuit Court of Appeals held that
the language “eventual entry” made the overall test based largely on “ephemeral
possibilities” (BOC International, at pp. 28-29). An actual potential
entrant should be expected to enter in the “near” future, with “near” being
defined in relation to the barriers to entry relevant in that particular
industry:

. . . it seems
necessary under Section 7 that the finding of probable entry at least contain
some reasonable temporal estimate related to the near future, with “near”
defined in terms of the entry barriers and lead time necessary for entry in the
particular industry, and that the finding be supported by substantial evidence
in the record.

(BOC
International,at p. 29)

[74]Neither Justice Mainville nor BOC
International expressly explain why the lead time should establish the
length of time the Tribunal can look into the future when assessing whether,
absent the merger, there would have been likely independent entry of one of the
merging parties. Though Justice Mainville notes that lead time should be
treated “as a guidepost and not as a fixed temporal rule” (para. 91), it is
important to emphasize that lead time should not be used to justify predictions
about the distant future. In some contexts, relevant lead time may be short,
and thus a determination of whether market entry is likely within that
timeframe may be sufficiently definite to meet the “likely” test. However, in
other contexts — for example, those where product development or regulatory
approval processes may extend for some years — the lead time may be so lengthy
that a determination of the probability of market entry at the far end of that
timeframe would be influenced by so many unknown and unknowable contingencies
as to render such a prediction largely speculative.

[75]The timeframe that can be considered must of
course be determined by the evidence in any given case. The evidence must be
sufficient to meet the “likely” test on a balance of probabilities, keeping in
mind that the further into the future the Tribunal looks the more difficult it
will be to meet this test. Lead time is an important consideration, though this
factor should not support an effort to look farther into the future than the
evidence supports.

[76]Business can be unpredictable and business
decisions are not always based on objective facts and dispassionate logic;
market conditions may change. In assessing whether a merger will likely prevent
competition substantially, neither the Tribunal nor courts should claim to make
future business decisions for companies. Factual findings about what a company
may or may not do must be based on evidence of the decision the company itself
would make; not the decision the Tribunal would make in the company’s
circumstances.

[77]If the Tribunal determines that the identified
merging party would, absent the merger, be likely to enter within a discernible
timeframe, the next question is whether this entry would likely result in a
substantial effect on competition in the market.

[78]It is not enough that a potential competitor
must be likely to enter the market; this entry must be likely to have a substantial
effect on the market. As discussed above, assessing substantiality requires
assessing a variety of dimensions of competition including price and output. It
also involves assessing the degree and duration of any effect it would have on
the market.

[79]Section 93 provides a non-exhaustive list of
factors that may be considered when assessing whether a merger substantially
lessens or prevents competition or is likely to do so, including whether a
party is a failing business, the availability of acceptable substitutes,
barriers to entry into the relevant market, the extent to which effective
competition remains or would remain after a merger, and whether the merger
would result in the removal of a vigorous and effective competitor.

[80]The Tribunal’s analytical framework and
conclusion that the merger will likely substantially prevent competition are,
in my view, correct. The Tribunal correctly applied the analytical framework
set out above. It used a forward-looking “but for” analysis to determine
whether the merger was likely to substantially prevent competition. The
Tribunal identified the acquired party, the Vendors, as the focus of the
analysis. The Tribunal then assessed whether, but for the merger, the Vendors
would have likely entered the relevant product market in a manner sufficient to
compete with Tervita.

[81]The Tribunal concluded that the merger “is more
likely than not to maintain the ability of [Tervita] to exercise materially
greater market power than in the absence of the [m]erger, and that the [m]erger
is likely to prevent competition substantially” (para. 229(iv)). In coming to
this conclusion the Tribunal assessed a number of the s. 93 factors including
the following:

•barriers to entry were “at least 30 months” and
there was “no evidence of any proposed entry in the Contestable Area” (para.
222; see s. 93(d));

•there is an absence of acceptable substitutes
and effective remaining competition (para. 223; see s. 93(c));

•there would be sufficient demand for secure
landfill services to make transforming the Babkirk site to a secure landfill
profitable as demand has “been projected to increase as new drilling is
undertaken in the area north and west of Babkirk” (para. 207; see s. 93(f));

•the permitted capacity of the Babkirk site was
sufficient to allow it to “compete effectively” with Tervita (para. 208; see s.
93(f)); and

[82]I agree with the Commissioner that “the Tribunal
did not speculate on what would happen to the Babkirk site . . . .
It made findings of fact based on the abundant evidence before it” (R.F., at
para. 61). The reasonableness of the factual findings were reviewed by the
Federal Court of Appeal and found to be supported by sufficient evidence.
While, as will be discussed, I question the Tribunal’s treatment of the
asserted 10 percent reduction in prices that would allegedly have been realized
in the absence of a merger (para. 229(iii)), it is evident that there was
sufficient other evidence upon which the Tribunal could find a substantial
prevention of competition as a result of the merger.

[83]Accordingly, the Tribunal’s conclusion that the
merger is likely to substantially prevent competition was correct. As s. 92 is
engaged, it is necessary to determine whether the s. 96 defence applies to
prevent the making of an order under s. 92.

[84] Tervita raises two issues with respect to the
Tribunal’s assessment of the s. 96 efficiencies defence. First, should OIEs, or
efficiencies that would arise because of the time necessary to implement the
Tribunal’s divestiture order under s. 92, be taken into account in the
balancing test under s. 96? Second, what is the proper approach to the
balancing analysis under s. 96? Before addressing the issues raised on appeal,
it will be useful to review the history of the statutory efficiencies defence
and the adjudicative treatment of the defence prior to this case.

[85]Section 96 was included as part of the new Competition
Act, proclaimed into force on June 19, 1986. The process of reforming
Canada’s competition laws began in 1966 when the federal government requested a
study from the Economic Council of Canada. The Council’s 1969 report
“identified economic efficiency as the overriding policy objective” of
legislative reform (A. N. Campbell, Merger Law and Practice: The Regulation
of Mergers Under the Competition Act (1997), at p. 21). After a number of
attempts to amend the legislation and following a lengthy and extensive
consultative process, the new Competition Actwas introduced. This
amendment process reflected concerns raised about the number of significant
mergers taking place in Canada (Facey and Assaf, at p. 9; see also W. T.
Stanbury and G. B. Reschenthaler, “Reforming Canadian Competition Policy: Once
More Unto the Breach” (1981), 5 Can. Bus. L.J. 381, at p. 388). In early
1981, the federal Minister of Consumer and Corporate Affairs solicited the
views of his provincial counterparts, trade associations, consumer groups and
academics with respect to proposals for amending the Combines Investigation
Act, R.S.C. 1970, c. C-23 (ibid.,at p. 381). This process
“yielded valuable experience laying the groundwork for what was to become the Competition
Act” (Facey and Assaf, at p. 10).

[86]Bill C-91, An Act to establish the
Competition Tribunal and to amend the Combines Investigation Act and the Bank
Act and other Acts in consequence thereof, was introduced in the House of
Commons in 1985 (1st Sess., 33rdParl., first reading Dec. 17, 1985,
assented to June 17, 1986, S.C. 1986, c. 26). This bill included comprehensive
amendments to the Combines Investigation Act, including the creation of
a new expert adjudicative body, the Competition Tribunal, and the inclusion of
the efficiencies defence (Facey and Assaf, at pp. 9-10).

[87]A stand-alone statutory efficiencies defence was
considered “particularly appropriate for Canada because a small domestic market
often precludes more than a few firms from operating at efficient levels of
production and because Canadian firms need to be able to exploit scale
economies to remain competitive internationally” (Campbell, at p. 152; see also
House of Commons Debates, vol. VIII, 1st Sess., 33rd Parl., April 7,
1986, at p. 11962; Minister of Consumer and Corporate Affairs, Competition
Law Amendments: A Guide (1985), at p. 4). In the context of the relatively
small Canadian economy, to which international trade is important, the
efficiencies defence is Parliamentary recognition that, in some cases,
consolidation is more beneficial than competition (ibid., at pp. 15-17).

[88]The leading case law on the interpretation of
the efficiencies defence remains the Superior Propane series of cases,
which began when the Commissioner applied to the Tribunal seeking an order to prevent
a merger between the two largest national distributors of propane (Superior
Propane I, rev’d on other grounds in Superior Propane II, leave to
appeal dismissed, [2001] 2 S.C.R. xiii; redetermination in Canada
(Commissioner of Competition) v. Superior Propane Inc., 2002 Comp. Trib. 16,
18 C.P.R. (4th) 417 (“Superior Propane III”), aff’d 2003 FCA 53, [2003]
3 F.C. 529 (“Superior Propane IV”)). Although this Court is not bound by
these decisions, the Superior Propane cases considered a number of
factors relevant to the efficiencies defence and its application.

[89]The Superior Propane I case confirmed
that s. 96 is a defence to the application of s. 92 (paras. 398-99). As such,
the onus of alleging and proving that efficiency gains from the merger will be
greater than and will offset the effects of any prevention or lessening of
competition resulting from the merger falls upon the merging parties (Superior
Propane I, at para. 399; Superior Propane II, at para. 154;
Superior Propane IV, at para. 64).

[90]The s. 96 efficiencies defence requires an
analysis of whether the efficiency gains of the merger, which result from the
integration of resources, outweigh the anti-competitive effects, which result
from the decrease in or absence of competition in the relevant geographic and
product market. As the Federal Court of Appeal explained in Superior
Propane II, “This is, in substance, a balancing test that weighs
efficiencies on one hand, against anti-competitive effects on the other” (para.
95).

[91]There are different possible methodologies for
the comparative exercise under s. 96 (Facey and Brown, at pp. 256-57). In
Canada, two main standards have been the subject of judicial consideration: the
“total surplus standard” and the “balancing weights standard”. For both
standards, two types of economic surplus are relevant: producer surplus and
consumer surplus.

[92]Producer surplus “measures how much more
producers are able to collect in revenue for a product than their cost of producing
it” (Facey and Brown, at p. 256). Producer surplus therefore represents the
wealth that accrues to producers. Consumer surplus is “a measure of how much
more the consumers of a product would have been willing to pay to purchase the
product compared to the prevailing market price” (ibid.). Consumer
surplus therefore represents the savings that accrue to consumers from what
they would have been willing to pay.

[93]The term “total surplus” refers to the sum of
producer and consumer surplus (see Facey and Brown, at p. 256). If a producer
covers its costs, including its cost of capital, by selling a unit of a product
at $20 and a consumer is willing to buy the unit for $40, then the total
surplus created by the unit is $20. If the eventual sale price is $30, for
example, then each of producer and consumer surplus is increased by $10 as a
result of the transaction. The total surplus in the economy represents the
aggregate of the total surplus created by each unit produced.

[94]The total surplus standard involves quantifying
the deadweight loss which will result from a merger — “the amount by which
total surplus is reduced under certain market conditions that reduce the
quantity of a good that is supplied” (Facey and Brown, at pp. 256-57).
Deadweight loss “results from the fall in demand for the merged entities’
products following a post-merger increase in price, and the inefficient
allocation of resources that occurs when, as prices rise, consumers purchase a
less suitable substitute” (Superior Propane IV,at para. 13).
Estimates of the elasticity of demand — or the degree to which demand for a
product varies with its price — are necessary to calculate the deadweight loss
(Tribunal decision, at para. 244).

[95]Under the total surplus standard, equal weight
is given from a welfare perspective to changes in producer and consumer surplus
(Facey and Brown, at p. 257). The decrease in total surplus resulting from
decreased competition is balanced against any offsetting increase in total
surplus resulting from more efficient production. The focus of this method is
purely on the magnitude of the total surplus: the degree to which total surplus
is allocated between producers and consumers is not considered. In other words,
the total surplus standard measures only the total benefit flowing to the
economy and is not concerned with to whom the benefits flow; the analysis of
the relevant effects is limited to the deadweight loss (Superior Propane IV,at para. 16). Therefore, the total surplus standard “does not consider the
effect of the wealth likely to be transferred from consumers to the
shareholders of the merged entity as a result of the anti-competitive merger
and the consequent increase of prices. This ‘wealth transfer’ or
‘redistributive effect’ is considered to be neutral” (Superior Propane IV,
at para. 14). As such, under the total surplus standard approach, an
anti-competitive merger will proceed when efficiency gains to producer surplus
are greater than the decrease in consumer surplus.

[96]In the Superior Propane cases, the Tribunal
and the Federal Court of Appeal recognized another methodology called the
“balancing weights” approach. This approach enables Tribunal members to “use
their individual judgment and discretion to evaluate whether the gains to
shareholders are more or less important to society than the losses of surplus
imposed on consumers by the exercise of market power” (Superior Propane I,
at para. 431).

[97]As explained in Superior Propane IV,
under the balancing weights approach, the Tribunal weighs the effects of the
merger on consumers against the effects of the merger on the shareholders of
the merged entity. The Tribunal first determines the relative weights to be
assigned to producer gains and consumer losses, to equate them, or to make the
wealth transfer neutral in effect. Then, the Tribunal engages in a value
judgment process to conclude whether the assigned weights are reasonable in
light of any disparity between the incomes of the relevant consumers and
shareholders of the merged entity (Superior Propane IV,at para.
20).

[98]The Tribunal may also adopt a modified version
of the balancing weights approach (see Superior Propane IV, at paras. 21
and 26). Under this modified approach, socially adverse redistribution effects,
or the portion of the wealth transfer that is attributable to higher prices
paid by low-income households, may be taken into account as an anti-competitive
effect, while components of the wealth transfer that are not socially adverse
may be treated as neutral (Superior Propane III,at para. 333).

[99]However, there is no mandated “correct”
methodology for the s. 96 analysis (Superior Propane II, at paras.
139-42). The statute does not set out which standard should be used. From an
economic perspective, there are arguments in favour of the total surplus
standard (see M. Trebilcock et al., The Law and Economics of Canadian
Competition Policy (2002), at pp. 146-51). However, that is not the issue
before this Court and, for the purpose of this case, it suffices to say that Superior
Propane II established that the Tribunal has the flexibility to make the
ultimate choice of methodology in view of the particular circumstances of each
merger.

[100]The Tribunal should consider all available
quantitative and qualitative evidence (Superior Propane I,at
para. 461; Superior Propane III, at para. 335). While quantitative
aspects of a merger are those which can be measured and reduced to dollar
amounts, qualitative elements of a merger, including in some cases such things
as better or worse service or lower or higher quality, may not be measurable as
they are dependent on individual preferences in the market (see Superior
Propane I, at paras. 459-60). Effects that can be quantified should be quantified,
even as estimates. If effects are realistically measurable, failure to at least
estimate the quantification of those effects will not result in the effects
being assessed on a qualitative basis (Superior Propane III, at para.
233; Superior Propane IV, at para. 35).

[101]The above principles developed in the Superior
Propane series of cases provide the foundation for the analysis of the s.
96 efficiencies defence. These principles serve as the backdrop to the legal
issues in the present case: consideration of whether specific efficiencies are
valid efficiencies for the purposes of the defence and the proper approach to
the balancing exercise under s. 96.

[102]In the context of a merger, efficiencies are
pro-competitive benefits. As Brian A. Facey and Cassandra Brown explain,
“Economists’ conception of efficiency revolves around the benefit, value or
satisfaction that accrues to society due to the actions and choices of its
members” (p. 253). There are three components: (1) production efficiency, which
“is achieved when output is produced using the most cost-effective combination
of productive resources available under existing technology”; (2) innovation or
dynamic efficiency, which “is achieved through the invention, development and
diffusion of new products and production processes”; and (3) allocative
efficiency, which “is achieved when the existing stock of goods and productive
output is allocated throughout the price system to those buyers who value them
most in terms of willingness to pay, such that ‘resources available to society
are allocated to their most valuable use’” (Facey and Brown, at pp. 253-55,
quoting Competition Bureau, Merger Enforcement Guidelines (2011), at
para. 12.4).

[103]Tervita argues that the Tribunal erred in
rejecting valid efficiencies from its consideration of the efficiency gains,
namely those referred to by the Tribunal as OIEs. Tervita submits that all
economic efficiencies, however arising, should be considered.

[104]Tervita claimed certain transportation and
market expansion efficiencies which Tervita could have attained more quickly
than a third party purchaser of the Babkirk site (A.F., at para. 100). As the
Federal Court of Appeal explained, the transportation gains in
efficiency are “productive gains in efficiency realized by the customers who
are closer to the Babkirk site, than to Tervita’s Silverberry secure landfill.
Since Tervita acquired the site allegedly to open a full-service secure
landfill operation there, customers located closer to that site would achieve
transportation cost savings” (para. 131). Tervita asserted before the Tribunal
that, had the Commissioner not intervened, it would have already been operating
a secure landfill at the Babkirk site by the spring of 2012 (Tribunal decision,
at para. 269). However, a third party purchaser would have been unlikely to
have a secure landfill in operation before the spring of 2013. Only Tervita
therefore could have enabled customers to achieve these additional
transportation efficiencies for that one-year period.

[105]The market gains in efficiency are the
result of additional hazardous waste which would be disposed at the Babkirk
site secure landfill: “Since there are significant costs and risks associated with
transporting such waste over long distances to the Silverberry secure landfill,
a site requiring a shorter transportation route (such as the Babkirk site)
would attract more hazardous waste than would otherwise have been disposed of
at Silverberry . . .” (F.C.A. decision, at para. 132). As with the
transportation gains in efficiency, Tervita would have been able to achieve the
market gains one year earlier than a third party purchaser — from the spring of
2012 to the spring of 2013.

[106]The Tribunal held that these one-year
transportation and market efficiency gains were a result of the time associated
with the implementation of its divestiture order, including the time required
to effect the actual sale of the shares or assets of Babkirk (estimated to take
at least six months including the due diligence process), to modify or prepare
an operations plan for the landfill, for the B.C. Ministry of the Environment
(“MOE”) to approve the operations plan, and for the purchaser to construct the
landfill, which can only be undertaken between June and September (para. 269).
As such, the Tribunal held that the OIEs were not cognizable efficiencies under
the Act (paras. 269-70).

[107]A distinction should be drawn between
efficiencies claimed because a merging party would be able to bring those
efficiencies into being faster than would be the case but for the merger (what
could be called “early-mover” efficiencies), and efficiencies that a merging
party could realize sooner than a competitor only because the competitor would
be delayed in implementing those efficiencies because of legal proceedings
associated with a divestiture order (what the Tribunal identified as OIEs).
While, as will be discussed, OIEs are not cognizable efficiencies under s. 96,
early-mover efficiencies are real economic efficiencies that are caused by the
merger, and not by delays associated with legal proceedings; were it not for
the merger, the economy would not gain the benefit of those efficiencies that
would have accrued in the time period between the merger and the actions of a
future competitor.

[108]Though the Tribunal held that the one-year
efficiencies claimed by Tervita were OIEs, the Tribunal’s reasons also appear
to suggest that those efficiencies could have been classified as early-mover
efficiencies. The Tribunal noted that Tervita would have been prepared to
operate the Babkirk site as a secure landfill by the summer of 2012 (para.
269), and also found that, under its “but for” analysis in which the merger
would not have occurred, the site would not have been operated as a secure
landfill accepting significant quantities of waste until the spring of 2013
(para. 207). Thus, it would appear that any transportation and market expansion
efficiencies arising from the operation of the Babkirk site as a secure
landfill from 2012 to 2013 under Tervita’s plans could have arisen not due to
delays caused by legal proceedings, but by Tervita’s ability to bring the site
into operation sooner than a potential competitor.

[109]The Tribunal’s reasons appear inconsistent on
whether the facts as found by the Tribunal would properly support the
classification of the one-year efficiencies at issue as early-mover
efficiencies or as OIEs. However, as will be discussed below, the
classification of these efficiencies in this case would not be dispositive
because the efficiencies were not ultimately realized by Tervita. Nevertheless,
in light of the importance of the issue of whether OIEs should be cognizable in
future cases, I turn now to an examination of that issue.

[110]In Tervita’s submission, OIEs must be considered
because s. 96 affords paramountcy to the statutory objective of economic
efficiency such that all efficiencies, however arising, must be considered. I
am unable to agree with Tervita on this point.

[111]Section 96 does give primacy to economic
efficiency. However, s. 96 is not without limitation.

[112]For ease of reference, I produce s. 96(1) here:

96. (1) The Tribunal shall not make an order under section 92 if it
finds that the merger or proposed merger in respect of which the application is
made has brought about or is likely to bring about gains in efficiency that
will be greater than, and will offset, the effects of any prevention or
lessening of competition that will result or is likely to result from the
merger or proposed merger and that the gains in efficiency would not likely be
attained if the order were made.

[113]In order for a party to gain the benefit of the
s. 96 defence, the Tribunal must be satisfied that the merger or proposed
merger has brought about or is likely to bring about gains in efficiency. The
Tribunal must also find that the gains in efficiency would not likely be
attained if a s. 92 order were made. In addition, and despite the paramountcy
given to economic efficiencies in s. 96, s. 96(3) prohibits the Tribunal from
considering a “redistribution of income between two or more persons” as an
offsetting efficiency gain. The limitation in s. 96(3) demonstrates that
Parliament does not intend for all efficiency gains, however arising, to be
taken into account under s. 96.

[114]The transportation and market efficiencies at
issue in this case are efficiency gains resulting from the operation of a
secure landfill facility at a location closer to some customers. However,
subject to the above discussion as to the proper classification of these
efficiencies in this case, the OIEs specifically are efficiency gains resulting
not from the merger itself, but from the implementation time associated with a
divestiture order (F.C.A. decision, at para. 135). Put simply, if these
efficiencies are properly classified as OIEs, they would be achieved by
Tervita, and not by a third party, only by virtue of Tervita being in operation
one year earlier than a third party purchaser following a divestiture order,
and only because of the time that it would take for the Tribunal’s order to be
implemented.

[115]Efficiencies that are the result of the
regulatory processes of the Act are not cognizable efficiencies under s. 96. The OIEs result from the operation and application of the legal
framework regulating competition law in Canada. The
provision states that the merger or proposed merger must bring
about or be likely to bring about gains in efficiency. The OIEs are
efficiencies which are not attributable to the merger. They are attributable to
the time associated with the implementation of the divestiture order.

[116]Finally, regardless of whether the efficiencies
are classified as early-mover efficiencies or OIEs, and as the Federal Court of
Appeal explained, the efficiencies were nevertheless not realized in this case
because Tervita did not actually construct and operate a landfill at the Babkirk
site before the merger review, or indeed before the date of the Tribunal’s
order. Tervita argues that this reasoning does not withstand scrutiny. In this
case, Tervita undertook to preserve and maintain all provincial MOE approvals,
permits and authorizations for the establishment and operation of a proposed
secure landfill at the Babkirk site pending the proceedings before the
Tribunal. Tervita argues that, as a result of this “hold separate undertaking”,
it could not have constructed its planned secure landfill. Again, I cannot
agree.

[117] “Hold separate” orders are typically issued to
prevent the intermingling of assets or businesses that would otherwise occur
through the merger (B. A. Facey, G. Hilton-Sullivan and M. Graham, “The
Reinvigoration of Canadian Antitrust Law — Canada’s New Approach to Merger
Review” (2010), 6 C.L.I. 28, at p. 33). These orders aim at avoiding the
difficulties that would arise in attempting to “unscramble the egg” if an order
was issued after a merger proceeded in full. In this case, the hold separate
undertaking was not the typical “unscramble the egg” undertaking concerned with
the intermingling of assets.

[118]The evidence in this case does not support
Tervita’s claim that the undertaking prevented it from operating the landfill.
The undertaking merely required Tervita to preserve and maintain the necessary
provincial environmental approvals for establishing and operating the proposed
secure landfill at the Babkirk site. The evidence before the Tribunal was that
Tervita wanted to increase the capacity of the secure landfill and doing so
would require an amendment to the approval for the site — a process Tervita
understood to be contrary to the undertaking. However, nothing prevented
Tervita from establishing and operating the landfill at the capacity allowed
for under the existing approval.

[119]The evidence is that Tervita had not taken the
steps to commence operating the landfill. Even assuming no divestiture order
were made, Tervita would not have been in a position to begin operating the
secure landfill at the conclusion of the proceedings.

[120]For these reasons, both the Tribunal and the
Federal Court of Appeal were correct that the OIEs are not cognizable
efficiencies under s. 96 (see Tribunal decision, at para. 270; F.C.A. decision,
at para. 135).

[121]Tervita argues that the Federal Court of Appeal
took an overly subjective approach to the offset analysis under s. 96. This
argument is based on the Commissioner’s failure to quantify the quantifiable
anti-competitive effects — specifically, the failure to quantify the deadweight
loss. This raises the specific questions of what content there is to the
Commissioner’s burden under s. 96 and what consequences flow from a failure to
meet the burden. More generally, Tervita’s argument requires consideration of
the overall balancing approach under s. 96.

[122]As explained above, the Superior Propane
series established that the Commissioner has the burden under s. 96 to prove
the anti-competitive effects. The merging parties bear the onus of establishing
all other elements of the defence, including the extent of the efficiency gains
and whether the gains are greater than and offset the anti-competitive effects
(see Superior Propane I, at paras. 399 and 403; Superior Propane II,
at para. 154; and Superior Propane IV,at para. 64). The parties
do not take issue with this allocation of onus.

[123]Tervita argues that the Commissioner’s onus is
to quantify all anti-competitive effects which can be quantified. In this case,
the Commissioner did not do so.

[124]The Commissioner argues that quantification is
not a legal prerequisite to considering anti-competitive effects (R.F., at paras.
84 and 88). On the contrary, the Commissioner’s legal burden is to quantify the
quantifiable anti-competitive effects upon which reliance is placed. Where
effects are measurable, they must be estimated. Effects will only be considered
qualitatively if they cannot be quantitatively estimated. A failure to quantify
quantifiable effects will not result in such effects being considered
qualitatively (Superior Propane IV, at para. 35). This approach
minimizes the degree of subjective judgment necessary in the analysis and
enables the Tribunal to make the most objective assessment possible in the
circumstances (Superior Propane IV, at para. 38). An approach that
would permit the Commissioner to meet her burden without at least establishing
estimates of the quantifiable anti-competitive effects fails to provide the
merging parties with the information they need to know the case they have to
meet.

[125] The Commissioner’s burden is to quantify by
estimation all quantifiable anti-competitive effects. Estimates are acceptable
as the analysis is forward-looking and looks to anti-competitive effects that
will or are likely to result from the merger. The Tribunal accepts estimates
because calculations of anti-competitive effects for the purposes of s. 96 do
not have the precision of history. However, to meet her burden, the
Commissioner must ground the estimates in evidence that can be challenged and
weighed. Qualitative anti-competitive effects, including lessening of service
or quality reduction, are only assessed on a subjective basis because this
analysis involves a weighing of considerations that cannot be quantified
because they have no common unit of measure (that is, they are
“incommensurable”). Due to the uncertainty inherent in economic prediction, the
analysis must be as analytically rigorous as possible in order to enable the
Tribunal to rely on a forward-looking approach to make a finding on a balance
of probabilities.

[126]In this case, the Commissioner did not quantify
quantifiable anti-competitive effects and therefore failed to meet her burden
under s. 96.

[127]The question concerns the legal implications of
a failure by the Commissioner to quantify quantifiable anti-competitive effects.
The Federal Court of Appeal recognized that “[a] quantitative effect which has
not in fact been quantified should not be considered as a qualitative effect”
(para. 158) but went on to hold that the non-quantified deadweight loss should
be assigned a weight of “undetermined” (paras. 130 and 167).

[128]With respect, I cannot agree. As explained
above, the Commissioner’s burden is to quantify all quantifiable
anti-competitive effects. The failure to do so is a failure to meet this legal
burden and, as a result, the quantifiable anti-competitive effects should be
fixed at zero. Quite simply, where the burden is not met, there are no proven
quantifiable anti-competitive effects.

[129]As Tervita submits, this approach is consistent
with that in civil proceedings where a party has failed to discharge its burden
of proof with respect to loss (see S. M. Waddams, The Law of Damages (5th
ed. 2012), at paras. 10.10 to 10.30). In addition, setting the effects at zero
where the Commissioner has failed to meet her legal burden is consistent with
taking an approach to the balancing analysis that is objectively reasonable. In
setting the weight at undetermined, the Federal Court of Appeal allowed for
subjective judgment to overtake the analysis. Undetermined effects were weighed
against the proven overhead gains in efficiency, which were described by the
court as “marginal” and “insignificant” (para. 174). Nonetheless, it is not
clear how the Federal Court of Appeal — or any court — could weigh undetermined
effects.

[130]The jurisprudence has consistently recognized
the importance of an objective approach to the balancing analysis (see Superior
Propane IV,at para. 38). As the Federal Court of Appeal recognized
in this case:

Objective determinations are better
suited for ensuring predictability in the application of the Competition Act
and avoiding arbitrary decisions. Predictability is particularly important in
merger reviews since most merger transactions are reviewed only by the
Commissioner and rarely reach the Tribunal. A methodology which favours
objective determinations whenever possible allows the parties to merger
transactions and the Commissioner to more readily predict the impacts of a
merger, discourages the use of arbitrary judgment in the process, and reduces
overall uncertainty in the Canadian business community. [para. 152]

I agree with these
reasons for favouring an objective approach. Although the Federal Court of
Appeal recognized the importance of an objective analysis, in assigning the
quantifiable but non-quantified effects a weight of “undetermined”, its
analysis did not meet the necessary objective standard.

[131]The Federal Court of Appeal’s “undetermined”
approach also raises concerns of fairness to the merging parties. The court
recognized that a “proper interpretation of section 96 of the Competition
Act requires that the [merging parties] must still demonstrate on a balance
of probabilities that the gains in efficiency offset the anti-competitive
effects” (para. 167). The difficulty with assigning non-quantified quantifiable
effects a weight of “undetermined” is that it places the merging parties in the
impossible position of having to demonstrate that the efficiency gains exceed
and offset an amount that is undetermined. Under this approach, to prove the
remaining elements of the defence on a balance of probabilities becomes an
unfair exercise as the merging parties do not know the case they have to meet.

[132]The Commissioner argues that, although the
anti-competitive effects in this case were not quantified, they could be
inferred as a result of the Tribunal’s finding that competition from the
Babkirk site would have led to an average price decrease of at least 10 percent
(Tribunal decision, at para. 297; R.F., at paras. 89-91). However, the 10
percent amount is not enough to calculate the deadweight loss as the
Commissioner did not establish the price elasticity of demand. The proven facts
demonstrated the size of the Contestable Area and the potential tonnes of waste
per year. Without a calculation of the actual loss, all that is known is that
there was a certain amount of potential waste subject to the effect of the
elasticity. In other words, the 10 percent calculation is not enough to
determine the extent of any anti-competitive effect. As the Federal Court of Appeal
noted:

In this case, the Tribunal itself found
that estimates of market elasticity [the change over the market as a whole] and
the merged entity’s own-price elasticity of demand [the degree to which demand
is effected by a change in price by the merged entity] are necessary in order
to calculate the “deadweight loss”. The Tribunal also recognized that a range
of plausible elasticities are required in order to understand the sensitivity
of the Commissioner’s estimates. Without those estimates, the “deadweight loss”
could not be properly calculated by the Commissioner, and Tervita could not
adequately challenge the calculations. [Emphasis deleted; para. 124.]

[133]In his reply expert report, the Commissioner’s
expert did submit estimates of potential market expansion. However, these
estimates were based on Tervita’s expert’s calculations of Tervita’s claimed
market expansion efficiencies, which were themselves based on unsupported
assumptions. As Tervita’s expert testified before the Tribunal, these calculations
could not be used to calculate the deadweight loss in the absence of an
adequate market demand elasticity study. In response to questioning from the
Tribunal, Tervita’s expert testified that it is not possible to calculate the
deadweight loss without customer-specific elasticity or market elasticity
numbers: “You need the shape of the demand curve to figure out dead weight
loss” (testimony of Dr. Kahwaty, F.C.A. decision, at para. 125).

[134]Without estimates of elasticity, the “deadweight
loss” could not be properly calculated by the Commissioner, and Tervita could
not adequately challenge the calculations (F.C.A. decision, at para. 124).
Indeed, the proven facts serve to demonstrate that the anti-competitive effects
might well have been estimated, but were not estimated due to the absence of
the critical component of elasticity measure. An inference based on the 10
percent finding and the unknown potential elasticity is not a substitution for
quantification.

[135]The Commissioner submits in the alternative that
the Tribunal did not breach procedural fairness in relying upon the rough
estimate of the Commissioner’s expert of the deadweight loss flowing from the
10 percent price reduction (R.F., at para. 107). I cannot agree. As the Federal
Court of Appeal found, the Commissioner’s failure to quantify the quantifiable
anti-competitive effects combined with the Tribunal’s decision to allow the
Commissioner to discharge her burden through a reply expert report setting out
the rough estimate resulted in prejudice to Tervita. Tervita was unable to
adequately challenge the Commissioner’s calculations due to the failure to
quantify the anti-competitive effects and as a result of the insufficient time
for Tervita to formally respond to the reply expert report (see F.C.A. decision,
at paras. 121-30).

[136]While the Commissioner has the burden to prove
the anti-competitive effects, the merging parties bear the onus of proving the
remaining elements of the defence. To allow for these kinds of procedural
deficiencies would be to leave the merging parties in an untenable position
where they are expected to prove that efficiencies are greater than and offset
the anti-competitive effects, despite not knowing what those effects are. I
cannot accept the Commissioner’s arguments that there was no unfairness in this
case because the calculation was “not complex” or because Tervita’s expert had
the opportunity to respond “briefly in direct examination”, in
cross-examination and on questioning from the Tribunal (R.F., at para. 108).
The reply expert report was only made available to Tervita two weeks before the
Tribunal’s hearing (Tribunal decision, at para. 235). As the Tribunal noted:
“By then, the Tribunal’s Scheduling Order did not permit [Tervita] to bring a
motion or file a further expert report. In addition . . . there was
insufficient time before the hearing to permit [Tervita] to move to strike [the
Commissioner’s expert] report or to seek leave to file a further report in
response . . .” (ibid.). The Tribunal found that the
procedural deficiencies meant that Tervita could not prepare a proper response
to the case presented by the Commissioner and that Tervita could not
effectively challenge the Commissioner’s evidence.

[137]In this case, the Commissioner failed to meet
her burden to quantify the quantifiable anti-competitive effects. As a result,
the Tribunal should have assigned zero weight to the quantifiable
anti-competitive effects.

[138]Justice Karakatsanis would permit quantitative
but unquantified effects to be considered with “undetermined” weight, on the
argument that such information is nonetheless probative on the question of
efficiency (para. 194). I cannot agree. As discussed above, there are sound
reasons to require that the s. 96 analysis be as objective as possible. This
argument concerns evidence for which quantification is entirely possible, but
has not been done. To consider such evidence is to conduct an analysis that is
less objective than is possible with more complete estimation. The Tribunal
should not sacrifice the objectivity of its analysis because a party has failed
to conduct a complete quantitative estimate of the magnitude of an effect.

[139]In this case, the absence of price elasticity
information means that the possible range of deadweight loss resulting from the
merger is unknown. All else being equal, high price elasticity would likely
result in significant deadweight loss, while low price elasticity could result
in minimal deadweight loss. To permit the Tribunal to consider the price
decrease evidence without the rest of the information necessary to quantify
deadweight loss admits far too much subjectivity into the analysis, with no
guarantee that the Tribunal will have enough information to ensure that a
subjective assessment would align with what would actually be observed if the
effect were properly quantified. Holding parties to account for the
quantification of the quantitative effects they wish to adduce by assigning
zero weight to undetermined quantitative effects acts to ensure that the
Tribunal will be presented with information on all of the parameters necessary
to estimate the magnitude of quantitative effects. To do otherwise invites
speculation into the analysis.

[140]Justice Karakatsanis agrees that “[o]bviously,
the Tribunal must apply the test in s. 96 to the evidence before it in a way that
is fair to the parties” (para. 196), but she does not explain how the party
opposed to such incomplete evidence may fairly determine the quantitative case
they must meet, or challenge the methodological details related to the
undetermined quantitative effects. These concerns reinforce the appropriateness
of assigning “undetermined” quantitative effects a weight of zero in the s. 96
analysis.

[141]The Federal Court of Appeal found that the
Tribunal erred in law in its s. 96 analysis by “accepting a defective
‘deadweight’ loss calculation, by using an overly subjective offset
methodology, by treating as qualitative effects certain quantitative effects
which the Commissioner had failed to quantify, and by referring to qualitative
environmental effects that are not cognizable under the Competition Act”
(para. 163). Rather than remitting the matter to the Tribunal for a new
determination, the court, satisfied that there was a complete record on which
to carry out a new determination, engaged in a fresh assessment of the offset
analysis. The court found that the efficiencies defence did not apply for two
primary reasons. First, “marginal and insignificant gains in efficiency cannot
offset known anti-competitive effects even where the weight to be afforded to
such effects is undetermined” (para. 174). Second, the present case was one of
a pre-existing monopoly, which the Federal Court of Appeal held magnified the
anti-competitive effects of the merger (para. 173).

[142]The Federal Court of Appeal held that the
efficiency gains did not meet the “greater than” and “offset” requirement under
s. 96. The gains were “marginal” (paras. 34, 169-71 and 174), “negligible”
(para. 169) and “insignificant” (paras. 170 and 174) and therefore were not
enough to outweigh the anti-competitive effects. In addition, the Tribunal
found that “even if a zero weighting is given to the quantifiable Effects,
as [Tervita] submitted should be done, [Tervita] has not satisfied the ‘offset’
element of section 96” (para. 314 (emphasis added; emphasis in original deleted)).
Although I have determined that the anti-competitive effects should be assigned
zero weight, I nonetheless consider the interpretation of the “greater than and
offset” requirement due to the importance of this question in the overall s. 96
assessment.

[143]The issue to be determined is whether the
statutory standard of “greater than, and will offset” requires that the merging
parties demonstrate that the efficiencies not only merely exceed the
anti-competitive effects, but in addition offset them. As I understand it, the
Commissioner’s argument in this regard is that the statutory language mandates
a threshold level of “more than marginal” efficiency gains in order for the
efficiencies defence to succeed (transcript, at p. 60). With respect, I cannot
agree.

[144]The statutory requirement that the efficiency
gains be “greater than” and “offset” the anti-competitive effects imports a
weighing of both quantitative and qualitative aspects. The term “greater than”
suggests a numerical comparison of the magnitude of the efficiencies versus the
extent of the anti-competitive effects. The use of the term “offset” implies a
subjective analysis related to the “balancing of incommensurables (e.g., apples
and oranges)” (Tribunal decision, at para. 309) — considerations that cannot be
quantitatively compared because they have no common measure. The statutory use
of the language of “offset” suggests that there is a more judgmental component
to the analysis (see Superior Propane II, at para. 100). As indicated by
the use of the term “neutraliseront” in the French version of s. 96,
this requires a subjective assessment of whether the efficiency gains
neutralize or counterbalance the anti-competitive effects.

[145]Together, the terms “greater than” and “offset”
mandate that the Tribunal determine both quantitative and qualitative aspects
of the merger, and then weigh and balance these aspects. This approach is
supported by the common understanding of the word “offset”. TheOxford
English Dictionary (2nd ed. 1989) defines the verb “offset” to mean “[t]o
set off as an equivalent against something else . . .; to balance by
something on the other side or of contrary nature” (p. 738). Similarly, the Merriam-Webster’s
Collegiate Dictionary (11th ed. 2003) entry defines it to mean “to serve as
a counterbalance for” (p. 862). This understanding supports the interpretation
of the “offset” requirement in s. 96 as imposing a consideration of the
qualitative aspects of the merger and a balancing of those qualitative aspects
against the quantitative effects of the merger.

[146]This is a flexible balancing approach, but the
Tribunal’s conclusions must be objectively reasonable. As the Federal Court of
Appeal held, the overall analysis “must be as objective as is reasonably
possible, and where an objective determination cannot be made, it must be reasonable”
(para. 147 (emphasis in original)). As such, in most cases the qualitative
effects will be of lesser importance. In addition, the statutory requirement
that efficiencies be greater than and offset the anti-competitive
effects would in most cases require a showing that the quantitative
efficiencies exceed the quantitative anti-competitive effects as a necessary
element of the defence.

[147]In light of this recognition, the balancing test
under s. 96 may be framed as a two-step inquiry. First, the quantitative
efficiencies of the merger at issue should be compared against the quantitative
anti-competitive effects (the “greater than” prong of the s. 96 inquiry). Where
the quantitative anti-competitive effects outweigh the quantitative
efficiencies, this step will in most cases be dispositive, and the defence will
not apply. There may be unusual situations in which there are relatively few
quantified efficiencies, yet where truly significant qualitative efficiencies
would support the application of the defence. However, such cases would likely
be rare in view of the emphasis of the analysis on objectivity and the
impermissibility of asserting unquantified-but-quantifiable efficiencies as
qualitative efficiencies. Qualitative considerations must next be weighed.
Under the second step, the qualitative efficiencies should be balanced against
the qualitative anti-competitive effects, and a final determination must be
made as to whether the total efficiencies offset the total anti-competitive
effects of the merger at issue (the “offset” prong of the inquiry). For the
Tribunal to give qualitative elements weight in the analysis, they must be
supported by the evidence, and the reasoning for the reliance on the
qualitative aspects must be clearly articulated.

[148]It should be noted that this two-step analysis
does not seek to define the methodological details of how quantitative
efficiencies and anti-competitive effects are to be identified and compared.
Instead, the two-step analysis preserves the ability of the Tribunal to select
the quantitative methodology to be employed, provided this quantitative
comparison is conducted within step one of the framework described above.

[149]Justice Karakatsanis raises concerns that this
framework unnaturally separates quantitative and qualitative considerations,
and that doing so is “superfluous” in light of the final offset determination
which considers both quantitative and qualitative factors (para. 189). Instead,
she would instruct the Tribunal to weigh whether the quantitative and
qualitative efficiencies, taken as a whole, outweigh the quantitative and
qualitative anti-competitive effects, taken as a whole. I would emphasize that
the above framework does not require the Tribunal to isolate quantitative and
qualitative considerations such that they are never compared. The ultimate
offset analysis does allow for consideration of both quantitative and
qualitative effects. However, I would think that the Tribunal, even proceeding
under Justice Karakatsanis’s proposed single-step weighing, would at some point
in that consideration ask how the quantitative factors lined up relative to
each other, and would also examine how the qualitative factors compared to each
other, before attempting to reconcile the whole universe of factors into an
ultimate determination. The above framework merely guides the structure of that
inquiry to ensure that the Tribunal’s reasoning is as explicit and transparent
as possible.

[150]Respectfully, the assertion in the dissenting
reasons that “simply tallying up ‘mathematical quantifications’, while
important, cannot provide a complete answer” (para. 190) misreads these
reasons. They do not say that quantitative considerations are in all cases a
sufficient and “complete answer”. Rather, they emphasize that the nature of
economic efficiencies, the language of s. 96, and the Federal Court of Appeal’s
apt observation that the s. 96 analysis “must be as objective as is
reasonably possible” support the notion that quantitative considerations will,
in most cases, be of greater importance than qualitative considerations.

[151]However, and despite the flexibility the
Tribunal has in applying this balancing approach, I cannot accept that more
than marginal efficiency gains are required for the defence to apply. Had
Parliament intended for there to be a threshold level of efficiencies,
qualifying language could have been used to express this intention. The
Commissioner’s argument essentially asks this Court to read into the statute a
threshold significance requirement where the statute does not provide a basis
for doing so. In addition, it is not clear to me when efficiency gains become
more than marginal. Determining when proven efficiency gains meet a more than
marginal threshold would require overly subjective analysis. Although there is
some subjectivity in the ultimate weighing of the efficiency gains and
anti-competitive effects, in a case such as this where the Commissioner has not
established either quantitative or qualitative anti-competitive effects, the
weight given to those effects is zero. Proven efficiency gains of any magnitude
will therefore outweigh the anti-competitive effects. Moreover, and as
discussed above, because of the importance of employing an objective approach,
the qualitative effects will assume a lesser role in the analysis in most
cases. As such, it is possible that, where proven quantitative efficiency gains
exceed the proven quantitative anti-competitive effects to only a small degree,
the Tribunal may still find that the s. 96 defence applies.

[152]Nor does the statutory context of s. 96(1)
indicate that it should be read to include a threshold significance
requirement. While s. 96(2) prompts the Tribunal to consider whether the merger
will generate “a significant increase in the real value of exports” or “a
significant substitution of domestic products for imported products”, this
significance requirement should not be read back into s. 96(1). Given that the
issue of significance was contemplated in s. 96(2), Parliament could just as
easily have drafted s. 96(1) to require that efficiencies be “significantly
greater than and offset” the anti-competitive effects. Instead, “significance”
language appears only in s. 96(2), which is logically subservient to s. 96(1):
by its terms, the text of s. 96(2) does not apply the significance threshold to
the entire s. 96(1) analysis.

[153]With respect, the Federal Court of Appeal’s
conclusion that marginal efficiency gains cannot meet the requirements for the
s. 96 defence to apply does not take into account the fact that the analysis
under s. 96 is a balancing exercise. Proven efficiency gains must be assessed
relative to any proven anti-competitive effects. Efficiency gains of a smaller
scale may not be “marginal” when compared to and weighed against
anti-competitive effects of an even smaller degree.

[154]Though it is necessary to re-emphasize that
there is no requirement that efficiencies cross some formal “significance”
threshold, this is not to ignore the truth that economic models are inherently
probabilistic and will always carry some associated margin of uncertainty.
Where the outcome of quantitative balancing under the first step of the s. 96
analysis shows positive but small net efficiencies relative to the uncertainty
of the associated estimates, the Tribunal should be cognizant of this
uncertainty in weighing the relevant considerations. This is not to suggest
that quantitative efficiencies should be discounted in these situations, but
merely to highlight that close cases will require careful consideration of the
assumptions underlying the quantitative analysis. In such cases, the Tribunal
retains the discretion to reject the efficiencies defence, but must clearly
explain the reasons for its decision. The reasons must be seen to be rational
even though they reject what the quantitative analysis would otherwise strictly
indicate.

[155]For these reasons, the Federal Court of Appeal
erred in holding that an anti-competitive merger cannot be approved under s. 96
if only marginal or insignificant gains in efficiency result from that merger.

[156]The Federal Court of Appeal held that the
Tribunal erred in “taking into account the monopoly position of Tervita
resulting from the merger without any evidence from the Commissioner of
additional anti-competitive effects resulting from that monopoly” (para. 161),
but concluded that a “pre-existing monopoly, such as is the case here, will
usually magnify the anti-competitive effects of a merger” (para. 173). The
Commissioner submits that the court did not rely on the presence of monopoly as
an effect per se, but rather simply concluded that this was a factor
likely to magnify the merger’s anti-competitive effect. There are two
problems with this argument.

[157]First, to accept that the existence of a monopoly
was likely to magnify the anti-competitive effect requires accepting that there
are proven anti-competitive effects. In this case, the Commissioner did not
establish the impact of Tervita’s superior market power and as a result of the
Commissioner’s failure to quantify the quantifiable anti-competitive effects,
zero weight has been assigned to those effects. It is not possible to “magnify”
a factor which has zero weight. This equation still results in zero.

[158]Second, in my respectful view, the Federal Court
of Appeal considered the existence of a monopoly per se as opposed to
its effects. As the court held in Superior Propane IV:

Monopoly, however it might be defined
(e.g. 95 percent market share, 100 percent market share, high barriers to
entry), is a description of a market condition, not the effect of that market
condition. If monopoly is to be taken into account for purposes of subsection
96(1), it is the effects of the monopoly that must be considered, not the
existence of the monopoly per se. [para. 49]

Here, where no effects
have been proven, it is not possible to say that such effects have been
magnified. Inevitably, that approach reverts to relying on the existence of a
monopoly per se.

[159]In this case, the Commissioner did not meet her
burden to prove the anti-competitive effects. As such, the weight given to the
quantifiable effects is zero. The Tribunal did not accept any of Tervita’s
claimed qualitative efficiencies and Tervita does not challenge this on appeal.
Tervita established “overhead” efficiency gains resulting from Babkirk
obtaining access to Tervita’s administrative and operating functions. These
gains meet the “greater than” requirement in this case.

[160]Turning to qualitative considerations, the
Federal Court of Appeal rejected the qualitative effects accepted by the
Tribunal — environmental effects with respect to the price reduction on-site
clean-up. This issue is raised by the Commissioner as an alternative to
rejecting the efficiencies defence on the basis of quantitative factors. As I
have found that the court’s rejection of the efficiencies defence was in error,
I now turn to whether the evidence of environmental effects was cognizable for
the purposes of s. 96.

[161]The Commissioner argues that the Federal Court
of Appeal erred in rejecting price reduction on potential customers’ site
clean-up and the resulting environmental benefits which the Tribunal had
accepted as qualitative effects of the merger. In rejecting these effects, the
court first questioned whether “the environmental effects of a merger, where no
economic effect is ascribed to them, can be taken into account in a merger
review under the Competition Act” (para. 155). The court then went on to
hold that, nonetheless, the Tribunal had double-counted this effect as it had
already addressed the 10 percent drop in tipping fees which would be brought
about by competition and which would result in the disposal of additional
tonnes of hazardous waste as part of the “deadweight loss” analysis. The court
held that this effect should only have been considered once “as a quantitative
anti-competitive effect that had not been appropriately quantified by the
Commissioner” (para. 157).

[162]The Commissioner’s arguments centre on her
position that the environmental impacts did have an economic effect. However,
while the Federal Court of Appeal questioned whether non-economic environmental
effects could be considered under the s. 96 analysis, the effects in this case
had an economic aspect. The court ultimately rejected these effects on the
basis that the environmental effects had been double-counted by the Tribunal.

[163]I agree with the Commissioner that where
environmental effects have economic dimensions, these effects may properly be
considered under the s. 96 analysis. Indeed, I do not read the Federal Court of
Appeal as saying otherwise. The issue raised by the Commissioner is whether the
environmental effects put into evidence by the Commissioner did have an
economic dimension. I agree that an effect such as a contingent liability on
the books of a company which has to remediate a site is an economic aspect of
an environmental effect. However, while there was evidence before the Tribunal
with respect to this kind of contingent liability, this evidence cannot be
considered in this case.

[164]First, there is no evidence as to whether the
waste covered by the contingent liability in question fell within the
Contestable Area. Second, there is no evidence as to the price elasticity of
demand of the customer in question. Finally, and as the Federal Court of Appeal
found, if this effect did fall within the Contestable Area, it was quantifiable
and therefore should have been quantified by the Commissioner. As explained
above, anti-competitive effects which are quantifiable will not be treated
qualitatively as a result of a failure to quantify. Therefore, and although
the environmental effects in this case had an economic dimension, the Tribunal
erred in assessing these effects qualitatively.

[165]The Commissioner failed to meet her burden,
resulting in the quantifiable anti-competitive effects being assigned a weight
of zero. The Federal Court of Appeal properly rejected the environmental
effects. There are therefore no proven qualitative anti-competitive effects.
Tervita successfully proved quantifiable “overhead” efficiency gains resulting
from Babkirk obtaining access to Tervita’s administrative and operating
functions. In this case, these proven gains met the “greater than and offset”
requirement. As there were no quantifiable or qualitative anti-competitive
effects proven by the Commissioner, the efficiencies defence applies, and the
Federal Court of Appeal was incorrect to conclude otherwise.

[166]It may seem paradoxical to hold that the
Tribunal was correct in finding a likely substantial prevention of competition,
only to then conduct the s. 96 balancing test and find zero anti-competitive
effects. However, this result merely appears paradoxical in view of the
particular facts of this case. Here, as discussed above, the Tribunal was able
to consider evidence as to the effect on the market of the emergence of likely
competitors, whether acceptable substitutes existed, and so on. Section 93
expressly permits the consideration of these factors in and of themselves.
Ordinarily, the Commissioner would also use the evidence bearing on those
factors to quantify the net effect of those factors on the economy in the form
of deadweight loss. However, the statutory scheme does not bar a finding of
likely substantial prevention where there has been a failure to quantify
deadweight loss, and thus the Commissioner’s failure to do so in this case was
not fatal to the s. 92 determination. By contrast, the balancing test under s.
96 does require that quantifiable anti-competitive effects be quantified in
order to be considered. As such, the failure to quantify deadweight loss in
this case barred consideration, under s. 96, of the quantifiable effects that
supported a finding of likely substantial prevention under s. 92. In
circumstances where quantifiable effects were in fact quantified, a finding of
likely substantial prevention under s. 92 would be accompanied by the
consideration of quantified anti-competitive effects under the s. 96 analysis.

[167]While the efficiencies defence applies in this
case under the terms of s. 96 as written, this case does not appear to me to
reflect the policy considerations that Parliament likely had in mind in
creating an exception to the general ban on anti-competitive mergers. As
discussed above at para. 84 in the historical examination of s. 96, the
evidence suggests that the efficiencies defence was created in recognition of
the size of Canada’s domestic market and with an eye toward supporting
operation at efficient levels of production and the realization of economies of
scale, particularly with reference to international competition. By contrast,
this case deals with competition on a local scale and where the operational
efficiencies obtained do not appear to have been central to the acquiring
party’s ability to realize economies of scale to compete in the relevant
market. Although I tend to think that this case may not represent one that
Parliament had in mind in creating the efficiencies defence, I nonetheless find
that the statute as currently drafted supports a finding that the defence is
available in this case.

[168]I would allow the appeal. I would set aside the
divestiture order of the Tribunal and dismiss the Commissioner’s s. 92
application. The appellants are entitled to costs in this Court and in the
Federal Court of Appeal.

The following
are the reasons delivered by

[169]Abella J. — In Pezim v.
British Columbia (Superintendent of Brokers), [1994] 2 S.C.R. 557, which
predates Dunsmuir v. New Brunswick, [2008] 1 S.C.R. 190,the
Court deferred to theBritish Columbia Securities Commission’s
specialized expertise in the interpretation of provisions of the Securities
Act, S.B.C. 1985, c. 83, and applied a reasonableness standard despite the
presence of a right of appeal and the absence of a privative clause. In other
words, the specialized nature of the tribunal was seen to be more determinative
of the legislature’s true intent to make the tribunal master of its mandate.
More recently, notwithstanding the same right of appeal in McLean v. British
Columbia (Securities Commission), [2013] 3 S.C.R. 895,this Court
once again applied a reasonableness standard based on the British Columbia
Securities Commission’s specialized expertise: see Securities Act,
R.S.B.C. 1996, c. 418, s. 167.

[170]The cornerstone laid in Pezim introduced
a new edifice for the review of specialized tribunals. Through cases like McLean,
Smith v. Alliance Pipeline Ltd., [2011] 1 S.C.R. 160, and Alberta
(Information and Privacy Commissioner) v. Alberta Teachers’ Association,
[2011] 3 S.C.R. 654,judges and lawyers engaging in judicial review
proceedings came to believe, rightly and reasonably, that the jurisprudence of
this Court had developed into a presumption that regardless of the presence or
absence of either a right of appeal or a privative clause — that is
notwithstanding legislative wording — when a tribunal is interpreting its home
statute, reasonableness applies. I am at a loss to see why we would chip away
— again[2]
— at this precedential certainty. It seems to me that what we should be doing
instead is confirming, not undermining, the reasonableness presumption and our
jurisprudence that statutory language alone is not determinative of the
applicable standard of review.

[171]That is why, with respect, although I otherwise
agree with the reasons of the majority, I think the applicable standard is
reasonableness, not correctness. I am aware that it is increasingly difficult
to discern the demarcations between a reasonableness and correctness analysis,
but until those lines are completely erased, I think it is worth protecting the
existing principles as much as possible. To apply correctness in this case
represents a reversion to the pre-Pezim era. Creating yet another
exception by relying on the statutory language in this case which sets out a
right of appeal, undermines the expertise the statute recognizes. This new
exception is also, in my respectful view, an inexplicable variation from our
jurisprudence that is certain to engender the very “standard of review”
confusion that inspired this Court to try to weave the strands together in the
first place.

Dunsmuir
recognized that with or without a privative clause, a measure of
deference has come to be accepted as appropriate where a particular decision
had been allocated to an administrative decision-maker rather than to the
courts. This deference extended not only to facts and policy but to a
tribunal’s interpretation of its constitutive statute and related enactments
because “there might be multiple valid interpretations of a statutory provision
or answers to a legal dispute and that courts ought not to interfere where the
tribunal’s decision is rationally supported” (Dunsmuir, at para. 41). A
policy of deference “recognizes the reality that, in many instances, those
working day to day in the implementation of frequently complex administrative
schemes have or will develop a considerable degree of expertise or field
sensitivity to the imperatives and nuances of the legislative regime” (Dunsmuir,
at para. 49, quoting Professor David J. Mullan, “Establishing the Standard of
Review: The Struggle for Complexity?” (2004), 17 C.J.A.L.P. 59, at p.
93). Moreover, “[d]eference may also be warranted where an administrative
tribunal has developed particular expertise in the application of a general
common law or civil law rule in relation to a specific statutory context” (Dunsmuir,
at para. 54). [Emphasis added.]

[173]This was further explained in Alberta Teachers’
Association in its first paragraph: “Through the creation of administrative
tribunals, legislatures confer decision-making authority on certain matters to
decision makers who are assumed to have specialized expertise with the assigned
subject matter. Courts owe deference to administrative decisions within the
area of decision-making authority conferred to such tribunals.”

[174]In Smith, this Court applied a
reasonableness standard of review to an arbitration committee’s interpretation
of its home statute, even though that statute provided that decisions of the
arbitration committee on questions of law or jurisdiction could be appealed
to the Federal Court (para. 40; see National Energy Board Act,
R.S.C. 1985, c. N-7, s. 101). And,
as previously noted, in McLean the Court held that a reasonableness
standard applied to the British Columbia Securities Commission’s interpretation
of its home statute despite the fact that the statute contained a statutory
right of appeal with leave to the British Columbia Court of Appeal: paras.
23-24; Securities Act, s. 167.

[175]In Canada (Canadian Human Rights Commission)
v. Canada (Attorney General), [2011] 3 S.C.R. 471, the Court recognized
that the fact that little deference had traditionally been extended to human
rights tribunals in respect of their decisions on legal questions, was in
tension with the deferential approach to judicial review espoused in Dunsmuir.
The Court ultimately held that because the question of costs was located
within the Canadian Human Rights Tribunal’s core function and expertise
relating to its interpretation and application of its enabling statute, a
reasonableness standard of review applied. As LeBel and Cromwell JJ. noted,
“[i]n the context of judicial review, deference can shield administrative
decision makers from excessive judicial intervention even on certain questions
of law as long as these questions are located within the decision makers’ core
function and expertise”: para. 30.

[177]It is true that this Court has recognized that
certain categories of questions warrant a correctness review. Rothstein J. set
them out in Alberta Teachers’ Association, at para. 30:

There is authority that “[d]eference
will usually result where a tribunal is interpreting its own statute or
statutes closely connected to its function, with which it will have particular
familiarity” (Dunsmuir, at para. 54; Smith v. Alliance Pipeline Ltd.,
2011 SCC 7, [2011] 1 S.C.R. 160, at para. 28, per Fish J.). This
principle applies unless the interpretation of the home statute falls into one
of the categories of questions to which the correctness standard continues to
apply, i.e., “constitutional questions, questions of law that are of central
importance to the legal system as a whole and that are outside the
adjudicator’s expertise, . . . ‘[q]uestions regarding the
jurisdictional lines between two or more competing specialized tribunals’ [and]
true questions of jurisdiction or vires” (Canada (Canadian Human
Rights Commission) v. Canada (Attorney General), 2011 SCC 53, [2011] 3
S.C.R. 471, at para. 18, per LeBel and Cromwell JJ., citing Dunsmuir,at paras. 58, 60-61).

[178]Notably, a statutory right of appeal is not one
of them.

[179]While the statutory language granting the right
of appeal in this case may be different from the language in Pezim, McLean
and Smith, it is not sufficiently different to undermine the established
principle of deference to tribunal expertise in the interpretation of the
tribunal’s own statute. Using such language to trump the deference owed to
tribunal expertise, elevates the factor of statutory language to a pre-eminent
and determinative status we have long denied it. I see nothing, in other
words, that warrants departing from what the legal profession has come to see
as our governing template for reviewing the decisions of specialized expert
tribunals on a reasonableness standard, most recently on muscular display in Sattva
Capital Corp. v. Creston Moly Corp., [2014] 2 S.C.R. 633.

[180]In this case, applying that template leads to
the conclusion that the Competition Tribunal’s interpretation of s. 96 of the Competition
Act,R.S.C. 1985, c. C-34, was unreasonable. I would allow the
appeal.

The
following are the reasons delivered by

[181]Karakatsanis J. (dissenting) — I
agree with the reasons of my colleague Justice Rothstein as they concern the
proper analytical approach to s. 92(1) of the Competition Act, R.S.C.
1985, c. C-34. I further agree with his conclusion that it was open to the
Competition Tribunal to find that the merger in this case was likely to
substantially prevent competition contrary to s. 92(1).

[182]However, I cannot agree with my colleague’s
approach to the s. 96 efficiencies defence and his conclusion that Tervita was
entitled to the benefit of that defence in this case. I would affirm the
decision and the analysis of the Federal Court of Appeal, 2013 FCA 28, [2014] 2
F.C.R. 352, in that regard.

[183]The efficiencies defence set out in s. 96(1) of
the Competition Actrequires the Tribunal to balance the efficiencies of
the merger against its anti-competitive effects:

96. (1) The Tribunal shall not make an order under section 92 if it
finds that the merger or proposed merger in respect of which the application is
made has brought about or is likely to bring about gains in efficiency that
will be greater than, and will offset, the effects of any prevention or
lessening of competition that will result or is likely to result from the
merger or proposed merger and that the gains in efficiency would not likely be
attained if the order were made.

[184]The Federal Court of Appeal and Justice
Rothstein concluded, rightly in my view, that the statutory requirement that
efficiency gains be “greater than” and “offset” the anti-competitive effects
imports a weighing of quantitative and qualitative aspects. The Tribunal has
the discretion to decide what methodology to apply on a case-by-case basis, so
long as the various objectives of the Act are taken into account. Section 96
provides for flexible trade-off analysis, in order to meet the various
objectives of the Act. Efficiencies and effects should be quantified wherever
reasonably possible; rough estimates should be provided where precise
quantification is not possible; and the assessment of qualitative effects
should be objectively reasonable, supported by evidence and clear reasoning. (See
Rothstein J.’s reasons, at paras. 144-45 and 148; F.C.A. reasons, at paras. 146
and 148.)

[185]However, I do not agree that the need for “reasonable
objectivity” justifies Justice Rothstein’s hierarchical approach to
quantitative and qualitative aspects under the efficiencies defence. Nor do I
accept his assessment that “qualitative effects will be of lesser importance”
(para. 146; see also paras. 147-48). I see no value in prioritizing
quantitative over qualitative efficiencies. Both are relevant to the statutory
test, and their significance depends on the circumstances of the case.

[186]The statutory language makes no such
distinction. Moreover, many of the purposes set out in s. 1.1 of the Act may
not be quantifiable. These purposes include not only providing consumers with
competitive prices and products, but also promoting adaptability of the
Canadian economy, expanding opportunities for Canadian businesses abroad,
recognizing the value of foreign competition in Canada, and ensuring that
businesses of all sizes are able to participate fully in the Canadian economy.

[187]These wide-ranging purposes illustrate that
important anti-competitive effects of a merger may be qualitative in nature.
In some cases, such qualitative effects may be determinative in the s. 96
analysis. Thus, the flexible analytical approach mandated by this provision
reflects the wide range of objectives the Act serves. Where the legislation
mandates such a purposive analysis, the relative significance of qualitative
and quantitative gains or effects can only be determined in the circumstances
of each case. It is neither helpful nor necessary to predetermine their
relative role and importance in the s. 96 defence.

[188]Justice Rothstein, however, frames the balancing
test in s. 96 as a two-step inquiry. First, he says, the quantitative
efficiencies of the merger at issue should be compared against the quantitative
anti-competitive effects (the “greater than” prong of the s. 96 inquiry).
Second, qualitative efficiencies should be balanced against the qualitative
anti-competitive effects, and a final determination must be made as to whether
the total efficiencies offset the total anti-competitive effects of the merger
at issue (the “offset” prong of the inquiry) (paras. 147-48).

[189]I do not read s. 96 as mandating a two-step
framework that separates quantitative and qualitative efficiencies and
anti-competitive effects. Such an approach is unnecessarily artificial and not
required by the statutory language or context. Presumably Justice Rothstein’s
“final determination” assesses whether the (quantitative and qualitative) gains
in efficiencies will be greater than, and will offset, the
(quantitative and qualitative) anti-competitive effects of the merger. This is
precisely what is required by the language of s. 96. The first two steps are
superfluous. In any event, the expert Tribunal is best positioned to identify
instances where like factors should be compared, as well as circumstances where
this would not be as effective.

[190]The Federal Court of Appeal agreed with the
Tribunal’s articulation of this aspect of the efficiencies defence test.
Writing for the court, Mainville J.A. found that “the offset called for under
section 96 . . . requires the Tribunal to balance both quantitative
and non-quantitative (i.e. qualitative) gains in efficiency against both the
quantitative and non-quantitative (i.e. qualitative) effects of any prevention
or lessening of competition” flowing from the merger (para. 146). In the court’s
view, the analysis is at heart about balancing overall efficiency gains against
overall anti-competitive effects, and simply tallying up “mathematical
quantifications”, while important, cannot provide a complete answer (ibid.).
Of course, quantification is very important in order to ensure, whenever
possible, that proper weight is attributed to any given efficiency or
anti-competitive effect.

[191]The Federal Court of Appeal’s approach to the s.
96 analysis provides an appropriate level of flexibility, given that
efficiencies and anti-competitive effects will not always be easy to measure.
For instance, there may be circumstances where a given quantitative factor is
closely linked to a qualitative factor. The s. 96 framework enables the expert
Tribunal to holistically assess the entirety of the evidence before it, rather
than artificially bifurcating the analysis of qualitative and quantitative
effects that may, in some cases, more helpfully be analyzed together. Such a
test allows the Tribunal to reach an objective and reasonable determination
regarding the s. 96 defence by minimizing subjective considerations, but
without limiting itself to solely mathematical considerations. This approach
provides more flexibility to achieve the purposes of the Act.

[192]Further, I disagree with my colleague that the
Tribunal (and in this case the Federal Court of Appeal) is precluded from
considering any evidence of a quantifiable anti-competitive effect because the
Commissioner of Competition failed to fully quantify it. I agree with the Federal
Court of Appeal that while the Commissioner should quantify when possible, the
failure to do so does not invalidate the evidence that established there was a
known anti-competitive effect of undetermined extent.

[193]The Commissioner bears the onus to prove “that a
merger or proposed merger prevents or lessens, or is likely to prevent or
lessen, competition substantially” under s. 92. She met that onus in this
case. Section 96 is a defence. It is the appellants who must demonstrate on a
balance of probabilities that the gains in efficiency offset the
anti-competitive effects in order for the s. 96 defence to apply. The
Commissioner bears the evidentiary burden to lead evidence of the
anti-competitive effects of a merger, and bears the risk that the failure to
fully quantify such effects where possible may render the evidence insufficient
to counter the evidence of efficiency gains.

[194]However, where the expert evidence does not
fully provide a quantification of the anti-competitive effects, I do not agree
with my colleague that the evidence has no probative value whatsoever and must
be ignored. Relevant evidence is generally admissible, and the failure to lead
the best evidence available goes to weight, not admissibility. Clearly, the
evidence will have less probative value without an estimate or quantification.
No doubt it would be more difficult for an undetermined anti-competitive effect
to outweigh any significant efficiency gains. However, it does not become
irrelevant or inadmissible. The statutory language does not require such a
result. Nor does the purpose or context of the legislation.

[195]Although Justice Rothstein recognizes that this
exclusionary rule may lead to a “paradoxical” result in this case, he justifies
his restrictive approach on the basis that it promotes objective assessment and
discourages subjectivity and speculation (paras. 151 and 166). In my view,
such an approach unduly limits the ability of the Tribunal to fulfill its
statutory mandate. Section 96 gives the Tribunal the flexibility to meet all
the purposes of the Act, including the primary
purpose “to maintain and encourage competition in Canada” (s. 1.1). The balancing exercise under s. 96 necessarily requires the
Tribunal to use its expert assessment and judgment. It must also provide
explicit and transparent reasons for its conclusions.

[196]Obviously, the Tribunal must apply the test in
s. 96 to the evidence before it in a way that is fair to the parties. Expert
decision makers routinely assess evidence that is not the best evidence
available, and they are attuned to when the particular circumstances of the
case could result in procedural unfairness.

[197]Here, the Federal Court of Appeal determined
that there was some value to the Tribunal’s finding that prices would have been
10 percent lower in the Contestable Area in the absence of a merger. While the
evidence did not permit a calculation of the deadweight loss in the absence of
estimates of market elasticity and the merged entity’s own price elasticity of
demand, in my view the court was entitled to conclude that this amounted to
evidence of a known anti-competitive effect, although its extent was
undetermined.

[198]Since it was open to the Federal Court of Appeal
to consider the anti-competitive effects in its analysis, it follows that the court
was also in a position to accept that Tervita’s pre-existing monopoly was
likely to magnify the anti-competitive effects of the merger (F.C.A. reasons,
at para. 173). Ultimately, the court was entitled to find that the proven
efficiency gains were “marginal to the point of being negligible” and did not
likely exceed the known (but undetermined) anti-competitive effects (para.
169).

[199]As noted above, the overall analysis under s. 96
must be as objectiveand reasonable as possible. Effects that can be quantified
should be quantified. However, within this framework, negligible gains in
efficiency will not necessarily outweigh and offset known anti-competitive
effects, even if they are assigned an “undetermined” weight. This approach is
in keeping with past jurisprudence of the Tribunal: Canada (Commissioner of
Competition) v. Superior Propane Inc., 2002
Comp. Trib. 16, 18 C.P.R. (4th) 417, at paras. 171-72. Such an approach
also accurately reflects the primary purpose of the Act, which is “to maintain
and encourage competition in Canada” (s. 1.1).

[200]The Federal Court of Appeal was accordingly
entitled to conclude that the s. 96 efficiencies defence was not available. I
would dismiss the appeal, and award costs to the respondent.

1.1 The purpose of this Act is
to maintain and encourage competition in Canada in order to promote the
efficiency and adaptability of the Canadian economy, in order to expand
opportunities for Canadian participation in world markets while at the same
time recognizing the role of foreign competition in Canada, in order to ensure
that small and medium-sized enterprises have an equitable opportunity to
participate in the Canadian economy and in order to provide consumers with
competitive prices and product choices.

79. (1) Where, on application by
the Commissioner, the Tribunal finds that

(a) one or more persons substantially or completely control,
throughout Canada or any area thereof, a class or species of business,

(b) that person or those persons have engaged in or are
engaging in a practice of anti-competitive acts, and

(c) the practice has had, is having or is likely to have the
effect of preventing or lessening competition substantially in a market,

the Tribunal may make an order prohibiting all or any of those
persons from engaging in that practice.

. . .

92. (1) Where, on application by
the Commissioner, the Tribunal finds that a merger or proposed merger prevents
or lessens, or is likely to prevent or lessen, competition substantially

(a) in a trade, industry or profession,

(b) among the sources from which a
trade, industry or profession obtains a product,

(c) among the outlets through which a trade, industry or
profession disposes of a product, or

(e) in the case of a completed merger, order any party to the
merger or any other person

(i) to dissolve the merger in such manner as the Tribunal directs,

(ii) to dispose of assets or shares designated by the Tribunal in
such manner as the Tribunal directs, or

(iii) in addition to or in lieu of the action referred to in
subparagraph (i) or (ii), with the consent of the person against whom the order
is directed and the Commissioner, to take any other action, or

(f) in the case of a proposed merger, make an order directed
against any party to the proposed merger or any other person

(i) ordering the person against whom the order is directed not to
proceed with the merger,

(ii) ordering the person against whom the order is directed not to
proceed with a part of the merger, or

(iii) in addition to or in lieu of the order referred to in
subparagraph (ii), either or both

(A) prohibiting the person against whom the order is directed,
should the merger or part thereof be completed, from doing any act or thing the
prohibition of which the Tribunal determines to be necessary to ensure that the
merger or part thereof does not prevent or lessen competition substantially, or

(B) with the consent of the person against whom the order is
directed and the Commissioner, ordering the person to take any other action.

(2) For the purpose of this
section, the Tribunal shall not find that a merger or proposed merger prevents
or lessens, or is likely to prevent or lessen, competition substantially solely
on the basis of evidence of concentration or market share.

93. In determining, for the
purpose of section 92, whether or not a merger or proposed merger prevents or
lessens, or is likely to prevent or lessen, competition substantially, the
Tribunal may have regard to the following factors:

(a) the extent to which foreign products or foreign
competitors provide or are likely to provide effective competition to the
businesses of the parties to the merger or proposed merger;

(b) whether the business, or a part of the business, of a
party to the merger or proposed merger has failed or is likely to fail;

(c) the extent to which acceptable substitutes for products
supplied by the parties to the merger or proposed merger are or are likely to
be available;

(d) any barriers to entry into a market, including

(i) tariff and non-tariff barriers to international trade,

(ii) interprovincial barriers to trade, and

(iii) regulatory control over entry,

and any effect of the merger or proposed merger on such barriers;

(e) the extent to which effective competition remains or
would remain in a market that is or would be affected by the merger or proposed
merger;

(f) any likelihood that the merger or proposed merger will or
would result in the removal of a vigorous and effective competitor;

(g) the nature and extent of change and innovation in a
relevant market; and

(h) any other factor that is relevant to competition in a
market that is or would be affected by the merger or proposed merger.

96. (1) The Tribunal shall not
make an order under section 92 if it finds that the merger or proposed merger
in respect of which the application is made has brought about or is likely to
bring about gains in efficiency that will be greater than, and will offset, the
effects of any prevention or lessening of competition that will result or is
likely to result from the merger or proposed merger and that the gains in
efficiency would not likely be attained if the order were made.

(2) In considering whether a merger or proposed merger is
likely to bring about gains in efficiency described in subsection (1), the
Tribunal shall consider whether such gains will result in

(a) a significant increase in the real value of exports; or

(b) a significant substitution of domestic products for
imported products.

(3) For the purposes of this section, the Tribunal shall not
find that a merger or proposed merger has brought about or is likely to bring
about gains in efficiency by reason only of a redistribution of income between
two or more persons.

Appeal
allowed with costs, Karakatsanis J.
dissenting.

Solicitors for the
appellants: Torys, Toronto.

Solicitor for the
respondent: Attorney General of Canada, Ottawa.

[1]
Crampton C.J. is a judicial member of the Competition Tribunal as well as the
Chief Justice of the Federal Court.